[Verse 1] When interest rates fluctuate and prices start to sway Duration measures sensitivity in a quantified way Macaulay counts the weighted time till cash flows reach your hand Modified strips the yield plus one to help you understand [Chorus] Duration, convexity, the bond price puzzle pieces PVBP and money duration when volatility increases Effective for embedded options, key rate for the curve Remember MAC-MOD-EFF-KEY, the sequence that you'll serve [Verse 2] Money duration multiplies by market value's weight While PVBP shows dollar change for one basis point's fate Convexity curves upward when no options interfere But callable bonds flatten out when rates drop crystal clear [Chorus] Duration, convexity, the bond price puzzle pieces PVBP and money duration when volatility increases Effective for embedded options, key rate for the curve Remember MAC-MOD-EFF-KEY, the sequence that you'll serve [Bridge] Expectations theory says forward rates predict tomorrow Liquidity preference adds a premium for the sorrow Segmented markets separate by maturity demand Preferred habitat blends them both across the yield command [Verse 3] Putable bonds gain value when the rates begin to climb Mortgage-backed securities have negative convex time Duration shortens when refinancing accelerates the flow Convexity turns negative as prepayments start to grow [Chorus] Duration, convexity, the bond price puzzle pieces PVBP and money duration when volatility increases Effective for embedded options, key rate for the curve Remember MAC-MOD-EFF-KEY, the sequence that you'll serve [Outro] EXP-LIQ-SEG-HAB for term structure theories Interest rate risk mastered through these mathematical queries
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