Fixed Income: Analytical Convexity; aka, modified convexity (FRM T4-41)

In this video, I will show you how to calculate modified convexity by matching the modified convexity that Tuckman shows in Table 4.6 in Chapter 4 of his book, Fixed Income Securities.
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[@SunilVerma-fv3tq]

Thanks David
The price that we have used here is calculated price i. e present value of future cash flows, so should we use this price or actual Market price?
Also is the yield of 2.09% YTM of the bond or Market Yield at that time, calculated from yield curve?

[@bionicturtle]

Sure thing, excellent questions, they are related. In this approach, the bond's market price determines its yield: specifically, the market price happens to be about $100.16 and this informs a yield of 2.09% = 2*RATE(5*2, 2.125%*100/2, -101.1559, 100) and THEN the yield becomes an input into the model.Consequently, the discounted cash flow price in the model will accurately match the price, but will inform all cash flow discounting.So the theoretical price matches the model price (to your first question); and the yield is informed only by the price, it is NOT a function of the term structure. I hope that's helpful,

[@SunilVerma-fv3tq]

@@bionicturtle.. This helps... Thank you 😊