PT - JOURNAL ARTICLE AU - Linda Smit AU - Barbara Swart TI - Calculating the Price of Bond Convexity AID - 10.3905/jpm.2006.611809 DP - 2006 Jan 31 TA - The Journal of Portfolio Management PG - 99--106 VI - 32 IP - 2 4099 - https://pm-research.com/content/32/2/99.short 4100 - https://pm-research.com/content/32/2/99.full AB - The global decline in interest rates has created a significant increase in the present value of pension funds; convexity plays an important roleā€”the convexity bias in the yield curve is well known. While the expectations hypothesis is valid for the money market sector of the yield curve, the remainder is determined by what we can call the expected volatility hypothesis, which is based on the principle of no-arbitrage between convexity and theta in the value of a bond portfolio. The results of a term structure model that constructs the yield curve using a closed-form solution are compared to actual data.TOPICS: Pension funds, factor-based models, fixed-income portfolio management