Duration Convexity Quant Interview Guide
Duration convexity quant interview guide covering duration, modified duration, convexity, price sensitivity, examples, and caveats.
Candidates preparing for fixed-income risk and pricing questions.
Duration measures first-order rate sensitivity
Duration approximates how much a bond price changes for a small rate move. Modified duration connects the rate move to price percentage change.
Convexity adds curvature
Duration is a linear approximation. Convexity captures the curvature in the price-yield relationship and matters more for larger rate moves.
Concrete example
A bond with duration five may lose roughly five percent for a one percentage point rise in yield before convexity adjustment.
Optionality changes behavior
Callable bonds, mortgages, and other option-like instruments can have changing duration and convexity as rates move and exercise incentives change.
Common mistakes
Candidates often use duration as exact. It is a local approximation and should be paired with convexity and curve-shape discussion.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.