A Quick Approximation for Modified Bond Duration and Convexity

Tom Arnold; John H. Earl; Cassandra D. Marshall

doi:10.3905/jwm.2015.18.3.053

Article

A Quick Approximation for Modified Bond Duration and Convexity

Tom Arnold, John H. Earl and Cassandra D. Marshall

The Journal of Wealth Management Winter 2015, 18 (3) 53-56; DOI: https://doi.org/10.3905/jwm.2015.18.3.053

Tom Arnold

is the F. Carlyle Tiller Chair in Business for the Department of Finance in the Robins School of Business at the University of Richmond in Richmond, VA. tarnold@richmond.edu

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For correspondence: tarnold@richmond.edu

John H. Earl

is an associate professor of finance in the Department of Finance in the Robins School of Business at the University of Richmond in Richmond, VA. jearl@richmond.edu

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For correspondence: jearl@richmond.edu

Cassandra D. Marshall

is an assistant professor of finance in the Department of Finance in the Robins School of Business at the University of Richmond in Richmond, VA. cmarshal@richmond.edu

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For correspondence: cmarshal@richmond.edu

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Abstract

A bond pricing formula introduced by Arnold [2014] and Arnold and Earl [2014] is used as the basis for calculating bond duration and convexity. By calculating a present value annuity using the coupon rate as the discount rate, approximations for bond duration and convexity emerge that are much less calculation intensive and are reasonably accurate.

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The Journal of Wealth Management

Vol. 18, Issue 3

Winter 2015

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A Quick Approximation for Modified Bond Duration and Convexity

Tom Arnold, John H. Earl, Cassandra D. Marshall

The Journal of Wealth Management Oct 2015, 18 (3) 53-56; DOI: 10.3905/jwm.2015.18.3.053