Question

Clearly draw two graphs. the first graph is for the bond's price yield relationship with its duration and convexity. Another is long call with delta and gamma. Explain the mathematical analogy between delta-duration and gamma-convexity. All parts should be labeled in the two graphs

Answer 1

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things is structure to what Note how Similian The whole we discussed for bonds the same logic - delta es first derivatives logic at for bonds the Second the gamma

As a result ex- think of the two that we ate cone are y2 30% be labeled diagram think Shoutal graph moving from yield Yi and 12 the price from pi and p2 NOW Y, and Y2 percentage say yield moving 2 to 3 % Let YI 21 Assume as a result the price bond moved $100 to $80 means that the price the bond to $80 this mean puce moved $20 es not a very express puce change these $10 is perpective that that moved $100 + the useful way able to place because the the in case we doing alaulation price PI-PR B P2 142-41 51. yield 1. 21. 37. 41.
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