Financial Risk Manager Part 1

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Explanation:

Use the standard effective duration and convexity formulas with the up/down shocked prices.

D_{eff} = \frac{P_{down} - P_{up}}{2P_0\Delta y}

D_{eff} = \frac{591.9 - 573.5}{2(584.2)(0.005)} = \frac{18.4}{5.842} \approx 3.15

So the approximate effective duration is 3.1.

C_{eff} = \frac{P_{down} + P_{up} - 2P_0}{P_0(\Delta y)^2}

C_{eff} = \frac{591.9 + 573.5 - 2(584.2)}{584.2(0.005)^2} = \frac{-3.0}{584.2 \times 0.000025} \approx -205

So the approximate effective convexity is -205.

B. 3.1 and -205

Explanation:

Use the standard effective duration and convexity formulas with the up/down shocked prices.

D_{eff} = \frac{P_{down} - P_{up}}{2P_0\Delta y}

D_{eff} = \frac{591.9 - 573.5}{2(584.2)(0.005)} = \frac{18.4}{5.842} \approx 3.15

So the approximate effective duration is 3.1.

C_{eff} = \frac{P_{down} + P_{up} - 2P_0}{P_0(\Delta y)^2}

C_{eff} = \frac{591.9 + 573.5 - 2(584.2)}{584.2(0.005)^2} = \frac{-3.0}{584.2 \times 0.000025} \approx -205

So the approximate effective convexity is -205.

B. 3.1 and -205

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MManit

Last updated: April 18, 2026 at 11:32

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