- the quality or condition of being convex
- pl. -·ties a convex surface, line, etc.
Origin of convexityClassical Latin convexitas
- The state of being convex.
- A convex surface, body, part, or line.
convexity - Investment & Finance Definition
- For a bond or note, a measure of the way duration and prices change when interest rates change, as represented in the curvature of the price-yield relationship. A bond or note has a positive convexity if the instrument’s value increases at least as much as duration indicates when rates drop, and decreases less than duration indicates when rates rise. Investors want positive convexity because it makes a bond more valuable after a price change than its duration value suggests.
- For options, a measure of the way the value of the position changes in response to the change in the volatility or price of the underlying instrument. An option with positive convexity holds or increases its value more than delta (the change in the price of the option with respect to a one-dollar change in the price of the underlying asset) would predict when volatility increases or when prices change by a large percentage.