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Duration provides a good approximation of changes in the price of an option-free bond, when the...

Duration provides a good approximation of changes in the price of an option-free bond, when the change in yield is relatively small. However, for large changes in yield a convexity adjustment needs to be incorporated. With the aid of your own fully annotated diagram, discuss the statement above and address why a convexity adjustment is necessary.

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jeff jeffy answered 1 year ago
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