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It refers to the variation in duration of a bond if we change the yield of the bond (i.e., first derivative of duration with respect to yield). It gives the entity of price movement if interest rates change. If a bond has positive convexity, its price will increase in case of an interest rate upward movement more than it would decrease in case of an interest rate downward movement. In option theory, convexity is represented by gamma.
Editor: Ugo TRENTA