A defence against the next convexity crunch

In a Risk.net article, Samy Ben Aoun, Global Head of Structured Rates and Cross-Asset Trading, Christophe Viard, Head of Structuring and Product Development for France, and Frederic Marquer, Head of Financial Institutions Solutions Sales for Asia ex-Japan, describe a new way of hedging the risk of bond convexity. 

The low interest rate environment and the convexity of bonds have led to a profound change in the dynamics of the fixed income world. In this article, our experts introduce the bond convexity and derive a fundamental equation, they detail the impact of this convexity on bond volatility and yield curve shape, and describe the consequence on asset-liability management which represents a challenge for all financial institutions. Finally, they introduce the convexity swap, a simple and innovative solution to transfer the convexity risk in a transparent and observable way.

Read the article "A defence against the next convexity crunch", published in Risk.net on 6 September 2021, by clicking below:

07.09.2021

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