Duration and Convexity Calculations, Yield Curve Applications
Free SOA Exam FM (Financial Mathematics) lesson in General Cash Flows, Portfolios, and Asset-Liability Management. 20 min read, ~3,067 words.
Portfolio duration/convexity = PV-weighted averages. Never simple averages. First-order Macaulay approximation is multiplicative:. A different number than. Perpetuity durations: level immediate,. From. Forward rate:. Numerator exponent always one more. Non-flat yield curve: discount each cash flow at its own spot rate. Bootstrapping: extract spot rates sequentially, shortest maturity first.
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What this lesson covers
- Content
- Example 1
- Example 2
- Example 3
- Example 4
- Example 5
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- 5b
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