The CONVEXIT function computes and returns a scalar that contains the convexity of a noncontingent cash flow. The arguments to the CONVEXIT function are as follows:

times

is an -dimensional column vector of times. Elements should be nonnegative.

flows

is an -dimensional column vector of cash flows.

ytm

is the per-period yield-to-maturity of the cash-flow stream. This is a scalar and should be positive.

Convexity is essentially a measure of how duration, the sensitivity of price to yield, changes as interest rates change:

Under certain assumptions, the convexity of cash flows that are not yield-sensitive is given by

where is the present value, is the effective per-period yield-to-maturity, is the number of cash flows, and the th cash flow is periods from the present.

The following statements compute the convexity of a noncontingent cash flow.

timesn = T(do(1, 100, 1));
flows = repeat(10, 100);
ytm = 0.1;
convexit = convexit(timesn, flows, ytm);
print convexit;