Convexiteitsrisico

Convexiteitsrisico, also known as convexity risk, is a financial risk that arises from the non-linear relationship between the price of a bond and changes in interest rates. This risk is particularly relevant for bonds with longer maturities, as their prices are more sensitive to interest rate changes compared to shorter-term bonds. Convexity risk is a measure of the sensitivity of a bond's duration to changes in interest rates. It is calculated using the second derivative of the bond's price with respect to interest rates, and is expressed as a percentage.

Convexity risk is important for investors and financial institutions to manage, as it can significantly impact the value of their bond portfolios. When interest rates rise, the prices of bonds with longer maturities tend to fall more than those with shorter maturities. This is because the present value of the bond's future cash flows decreases more rapidly as interest rates increase. Conversely, when interest rates fall, the prices of longer-term bonds tend to rise more than those with shorter maturities.

To mitigate convexity risk, investors can use various strategies, such as duration matching, where they match the duration of their bond portfolio to the expected duration of their liabilities. They can also use convexity adjustments, which involve adding or subtracting a certain amount from the bond's duration to account for the non-linear relationship between the bond's price and interest rates. Additionally, investors can use derivatives, such as interest rate swaps, to hedge against convexity risk.

In summary, convexity risk is a financial risk that arises from the non-linear relationship between the price of a bond and changes in interest rates. It is particularly relevant for bonds with longer maturities and can significantly impact the value of bond portfolios. Investors and financial institutions can use various strategies to manage convexity risk, such as duration matching, convexity adjustments, and derivatives.