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Verify that DerivaGem agrees with the price of the bond in Section 4.6. Test how well DV01 predicts the effect of a one-basis point increase
Verify that DerivaGem agrees with the price of the bond in Section 4.6. Test how well DV01 predicts the effect of a one-basis point increase in all rates. Estimate the duration of the bond from DV01. Use DV01 and Gamma to predict the effect of a 200 basis point increase in all rates. Use Gamma to estimate the bond's convexity. (Hint: In DerivaGem DV01 is dB/dy, where B is the price of the bond and y is the yield measured in basis points, and Gamma is d2B/dy2where y is measured in percent.)
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