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Convexity (finance)

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In mathematical finance, convexity refers to non-linearities in a financial model. [1]

17 relations: Black–Scholes model, Bond convexity, Callable bond, Constant maturity swap, Eurodollar, Financial modeling, Girsanov theorem, Greeks (finance), Hockey stick, Jensen's inequality, LIBOR market model, Mathematical finance, Mortgage-backed security, Option-adjusted spread, Perturbation theory, Second derivative, Straddle.

Black–Scholes model

The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments.

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Bond convexity

In finance, bond convexity is a measure of the non-linear relationship of bond prices to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative).

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Callable bond

A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.

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Constant maturity swap

A constant maturity swap, also known as a CMS, is a swap that allows the purchaser to fix the duration of received flows on a swap.

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Eurodollar

Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve.

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Financial modeling

Financial modeling is the task of building an abstract representation (a model) of a real world financial situation.

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Girsanov theorem

In probability theory, the Girsanov theorem (named after Igor Vladimirovich Girsanov) describes how the dynamics of stochastic processes change when the original measure is changed to an equivalent probability measure.

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Greeks (finance)

In mathematical finance, the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent.

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Hockey stick

A hockey stick is a piece of sport equipment used by the players in all the forms of hockey to move the ball or puck (as appropriate to the type of hockey) either to push, pull, hit, strike, flick, steer, launch or stop the ball/puck during play with the objective being to move the ball/puck around the playing area and between team members using the stick, and to ultimately score a goal with it against an opposing team.

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Jensen's inequality

In mathematics, Jensen's inequality, named after the Danish mathematician Johan Jensen, relates the value of a convex function of an integral to the integral of the convex function.

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LIBOR market model

The LIBOR market model, also known as the BGM Model (Brace Gatarek Musiela Model, in reference to the names of some of the inventors) is a financial model of interest rates.

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Mathematical finance

Mathematical finance, also known as quantitative finance, is a field of applied mathematics, concerned with mathematical modeling of financial markets.

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Mortgage-backed security

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages.

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Option-adjusted spread

Option-adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price, using a dynamic pricing model that accounts for embedded options.

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Perturbation theory

Perturbation theory comprises mathematical methods for finding an approximate solution to a problem, by starting from the exact solution of a related, simpler problem.

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Second derivative

In calculus, the second derivative, or the second order derivative, of a function is the derivative of the derivative of.

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Straddle

In finance, a straddle refers to two transactions that share the same security, with positions that offset one another.

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Redirects here:

Convexity correction, Convexity risk.

References

[1] https://en.wikipedia.org/wiki/Convexity_(finance)

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