What is 'Convexity'
Convexity is a measure of the curvature in the relationship between bond prices and bond yields that demonstrates how the duration of a bond changes as the interest rate changes. Convexity is used as a riskmanagement tool, and helps to measure and manage the amount of market risk to which a portfolio of bonds is exposed.
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BREAKING DOWN 'Convexity'
In the example above, Bond A has a higher convexity than Bond B, which means that all else being equal, Bond A will always have a higher price than Bond B as interest rates rise or fall.
As convexity increases, the systemic risk to which the portfolio is exposed increases. As convexity decreases, the exposure to market interest rates decreases and the bond portfolio can be considered hedged. In general, the higher the coupon rate, the lower the convexity (or market risk) of a bond. This is because market rates would have to increase greatly to surpass the coupon on the bond, meaning there is less risk to the investor.

Negative Convexity
When the shape of a bond's yield curve is concave. A bond's convexity ... 
Convexity Adjustment
The change required to be made to a forward interest rate or ... 
Bond
A debt investment in which an investor loans money to an entity ... 
Bond Option
An option contract in which the underlying asset is a bond. Other ... 
Discount Bond
A bond that is issued for less than its par (or face) value, ... 
Required Yield
The return a bond must offer in order to be a worthwhile investment. ...

Markets
Explaining Convexity
Convexity is the measure of the curve in the relationship between a bondâ€™s price and its yield. 
Investing
Immunization Inoculates Against Interest Rate Risk
Bigmoney investors can hedge against bond portfolio losses caused by rate fluctuations. 
Markets
Use Duration And Convexity To Measure Bond Risk
Find out how this measure can help fixedincome investors manage their portfolios. 
Markets
The Effect of Fed Fund Rate Hikes on Your Bond Portfolio
Learn how an increase in the federal funds rate may impact a bond portfolio. Read about how investors can use the duration of their portfolio to reduce risk. 
Financial Advisor
Why You Should Avoid Fixating on Bond Duration
Financial advisors and their clients should then focus on a bond fundâ€™s portfolio rather than relying on any single metric like duration. 
Markets
5 Fixed Income Plays After the Fed Rate Increase
Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates. 
Markets
Corporate Bond Basics: Learn to Invest
Understand the basics of corporate bonds to increase your chances of positive returns. 
Markets
Understanding Interest Rates, Inflation And Bonds
Get to know the relationships that determine a bond's price and its payout. 
Managing Wealth
The Basics Of Bonds
Bonds play an important part in your portfolio as you age; learning about them makes good financial sense. 
ETFs & Mutual Funds
Key Strategies To Avoid Negative Bond Returns
It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.

How is convexity used in risk management?
Learn how convexity is used for risk management for bond portfolios, and understand the difference between duration and convexity ... Read Answer >> 
You currently are holding a portfolio of bonds. Interest rates are expected to increase ...
The correct answer is c. Bonds with high convexity are less affected by changes in interest rates than bonds with lower convexity. ... Read Answer >> 
What is the correlation between a coupon rate and the convexity of a given bond?
Read about the relationship between the coupon rate of a bond, its yield and its convexity, and why zerocoupon bonds tend ... Read Answer >> 
How do I use the principles of convexity to compare bonds?
Read a brief overview of bond duration and bond convexity and why bondholders should take these into consideration when deciding ... Read Answer >> 
How can I calculate convexity in Excel?
Learn how to approximate the effective convexity of a bond using Microsoft Excel using a modified and simpler version of ... Read Answer >> 
How can I calculate convexity in MATLAB?
Learn about convexity of the bonds and how to calculate it in MATLAB with function "bndconvy" after specifying necessary ... Read Answer >>