convexity

noun
con·​vex·​i·​ty | \kən-ˈvek-sə-tē, kän-\
plural convexities

Definition of convexity 

1 : the quality or state of being convex

2 : a convex surface or part

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Examples of convexity in a Sentence

the convexity of the lens the convexities along the surface

Recent Examples on the Web

A regime shift in volatility will be best captured with long-convexity exposure combined with tactical shorts rather than tail-risk strategies betting on mean-reverting volatility spikes. Tanvir Sandhu, Bloomberg.com, "Popular Low-Volatility Game Returning 4,000% May End in Tears," 12 May 2017 His Convexity Capital Management LP has lost $1 billion of its clients’ money over the past few years as once reliable options trades backfired. Juliet Chung, WSJ, "Former Harvard Money Whiz Jack Meyer Tries to Regain His Edge," 19 Apr. 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'convexity.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of convexity

1599, in the meaning defined at sense 1

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Time Traveler for convexity

The first known use of convexity was in 1599

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More Definitions for convexity

convexity

noun

Financial Definition of convexity

What It Is

In the bond world, convexity refers to the shape of the yield curve and  how sensitive bond prices are to changes in interest rates.

How It Works

The degree to which a bond's price changes when interest rates change is called duration, which often is represented visually by a yield curve. Convexity describes how much a bond's duration changes when interest rates change, meaning that investors can learn a lot not just from the direction of the yield curve but the curviness of the yield curve. Accordingly, convexity helps investors anticipate what will happen to the price of a particular bond if market interest rates change.

Generally, when interest rates fall, bond prices rise. But a bond with negative convexity loses value when interest rates fall. This is often the case for mortgage-backed securities because they rely on underlying mortgage loans, which are typically refinanced (and thus paid off early) when interest rates fall. Prepayment repays the lenders and mortgage-backed security investors off early, leaving them stuck with reinvesting their money at the market's current lower rates. Just the opposite would happen with bonds that have positive convexity.

Why It Matters

Convexity is a price-predicting tool for bonds. It also reveals the interest rate risk of a bond and helps investors consider whether a bond's yield is worth the underlying risk.

Most mortgage bonds are negatively convex, largely because they can be prepaid. An issuer's incentive to call a callable bond at par also increases as interest rates decrease; therefore, the prices of instruments with negative convexity do not rise as quickly as the prices of noncallable bonds, whose convexity is different.

Source: Investing Answers

convexity

noun

English Language Learners Definition of convexity

: the quality or state of being curved outward : the quality or state of being convex

: a shape that is curved outward : a convex shape

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