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Duration, Convexity and Higher Order Hedging (Revisited)


  • Andrew Jeffrey


Here the concepts of Duration and Convexity are studied when the term structure at a single point in time generally cannot be summarized by a finite number of state variables. Hence it is unclear whether calculating Duration and Convexity from partial derivatives makes sense. In this paper definitions of Duration and Convexity are provided that circumvent this problem and consistency with traditional measures is shown. The information required to compute Duration as defined in this paper consists of the term structure and the volatility of zero-coupon bonds. Convexity addit

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  • Andrew Jeffrey, 2001. "Duration, Convexity and Higher Order Hedging (Revisited)," Yale School of Management Working Papers ysm166, Yale School of Management, revised 01 Aug 2001.
  • Handle: RePEc:ysm:somwrk:ysm166

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    1. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2005. "Limit Order Book as a Market for Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1171-1217.
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    5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    6. Back, Kerry, 1992. "Insider Trading in Continuous Time," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    7. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
    8. Hausman, Jerry A. & Lo, Andrew W. & MacKinlay, A. Craig, 1992. "An ordered probit analysis of transaction stock prices," Journal of Financial Economics, Elsevier, vol. 31(3), pages 319-379, June.
    9. Hans Degryse & Frank De Jong & Maarten Van Ravenswaaij & Gunther Wuyts, 2005. "Aggressive Orders and the Resiliency of a Limit Order Market," Review of Finance, European Finance Association, vol. 9(2), pages 201-242.
    10. Kempf, Alexander & Korn, Olaf, 1999. "Market depth and order size1," Journal of Financial Markets, Elsevier, vol. 2(1), pages 29-48, February.
    11. Bertsimas, Dimitris & Lo, Andrew W., 1998. "Optimal control of execution costs," Journal of Financial Markets, Elsevier, vol. 1(1), pages 1-50, April.
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