Convexity

Duration Video discusses how to calculate the percentage change in bond price.

Convexity Adjustment for Eurodollar Futures.  This video shows how to perform the calculation using Microsoft Excel.

What is Convexity?

Remember, as bond yields go higher, price goes lower.  This relationship between price and yield has a convex structure in nature.  The term used to describe this relationship is also known as convexity.  Notice in the diagram below, we have drawn a tangent line a yield Y*.  This tangent line