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Convexity

German: Konvexität

The curvature of the price-yield curve of a bond – it makes price gains from falling yields larger than losses from equally large rises.

Duration estimates price changes as a straight line, but the true price curve bends upward. Convexity corrects that estimate and is especially large for long maturities and low coupons. Callable bonds and mortgage-backed securities can have negative convexity.