Convexity (finance)

In finance, **convexity** refers to the curvature in the relationship between bond prices and bond yields. It is a measure of how the duration of a bond changes as interest rates change, and it helps investors understand how the price of a bond will react to interest rate fluctuations. Here are key points to understand convexity: 1. **Price-Yield Relationship:** The relationship between bond prices and yields is not linear; thus, the price does not change at a constant rate as yields change.