cfconv

Cash flow convexity

Syntax

CFlowConvexity = cfconv(CashFlow,Yield)

Description

CFlowConvexity = cfconv(CashFlow,Yield) returns the convexity of a cash flow in periods.

Examples

Compute the Convexity of a Cash Flow

This example shows how to return the convexity of a cash flow, given a cash flow of nine payments of $2.50 and a final payment $102.50, with a periodic yield of 2.5%.

CashFlow = [2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 102.5];

Convex = cfconv(CashFlow, 0.025)

Convex = 
90.4493

Input Arguments

CashFlow — Cash flow

vector of real numbers

Cash flow, specified as a vector of real numbers.

Data Types: double

Yield — Periodic yield

scalar decimal

Periodic yield, specified as a scalar decimal.

Data Types: double

Output Arguments

CFlowConvexity — Convexity

scalar

Convexity returned as a scalar.

More About

Cash Flow Convexity

Cash flow convexity is a financial metric that measures the sensitivity of the cash flows from an investment to changes in interest rates, specifically focusing on how the present value of those cash flows changes as interest rates fluctuate.

Understanding cash flow convexity helps investors assess the risk associated with interest-rate movements. Higher convexity indicates that the cash flows will be less sensitive to interest-rate changes, which can be beneficial in volatile interest-rate environments. Cash flow convexity provides a more comprehensive measure of interest-rate risk than duration alone, as duration only captures the linear relationship between price and yield.

Version History

Introduced before R2006a