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Definition of Convex

Convex Image 1

Convex

Bowed, as in the shape of a curve. Usually referring to the price/required yield relationship for
option-free bonds.



Related Terms:

Convexity

A measure of the rate of change in duration; measured in time.
The greater the rate of change, the more the duration changes as yield changes.


Effective convexity

The convexity of a bond calculated with cash flows that change with yields.


Negative convexity

A bond characteristic such that the price appreciation will be less than the price
depreciation for a large change in yield of a given number of basis points.


Positive convexity

property of option-free bonds whereby the price appreciation for a large upward change
in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change
in interest rates.


Optimization approach to indexing

An approach to indexing which seeks to Optimize some objective, such
as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.



Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees

A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
reporting environment in the United States. In a report dated February 1999, the committee
made recommendations for new rules for regulation of financial reporting in the United States that
either duplicated or carried forward the recommendations of the Treadway Commission.


Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of
compounding.


Convex Image 1

effective annual interest rate

Interest rate that is annualized using compound interest.


Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.


Effective Annual Yield

Annualized rate of return on a security computed using compound
interest techniques


Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.


Effective date

In an interest rate swap, the date the swap begins accruing interest.


Effective duration

The duration calculated using the approximate duration formula for a bond with an
embedded option, reflecting the expected change in the cash flow caused by the option. Measures the
responsiveness of a bond's price taking into account the expected cash flows will change as interest rates
change due to the embedded option.


Effective Exchange Rate

The weighted average of several exchange rates, where the weights are determined by the extent of our trade done with each country.


Effective Interest Rate

The rate of interest actually earned on an investment. It is
calculated as the ratio of the total amount of interest actually
earned for one year divided by the amount of the principal.


Effective margin (EM)

Used with SAT performance measures, the amount equaling the net earned spread, or
margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate
scenario.


Convex Image 2

Effective rate

A measure of the time value of money that fully reflects the effects of compounding.


Effective spread

The gross underwriting spread adjusted for the impact of the announcement of the common
stock offering on the firm's share price.



Effective Tax Rate

The total tax provision divided by pretax book income from continuing
operations.


effectiveness

a measure of how well an organization’s goals
and objectives are achieved; compares actual output results
to desired results; determination of the successful accomplishment
of an objective


Negative convexity

A bond characteristic such that the price appreciation will be less than the price
depreciation for a large change in yield of a given number of basis points.


Panel on Audit Effectiveness

A special committee of the Public Oversight Board that was created
to perform a comprehensive review and evaluation of the way independent audits of financial
statements of publicly traded companies are performed. The panel found generally that the
quality of audits is fundamentally sound. The panel did recommend the expansion of audit steps
designed to detect fraud.


Policy-Ineffectiveness Proposition

Theory that anticipated policy has no effect on output.


Positive convexity

property of option-free bonds whereby the price appreciation for a large upward change
in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change
in interest rates.



 

 

 

 

 

 

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