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Duration and Convexity - Example First, we need to calculate the duration of bond A and B DA = 1 BA Similarly, DB =

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Duration and Convexity - Example First, we need to calculate the duration of bond A and B DA = 1 BA Similarly, DB = 6.28 5 15 x i 100 5 + = 3.95 (1+0.1) (1.1)5 Let a and b be the respective unit of A and B in the portfolio. Since the duration of the portfolio is matched to be 5, we have: DA X 118.95a 118.95a130.72b + DB x 130.72b 118.95a130.72b 5 In addition, the future value of the portfolio should be equal to the future value of $1 million: 118.95a130.72b 1000000 = (1.1)5

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