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CONVEXITY is the price change that occurs for a bond not accounted for or predicted by modified dU1"ation. Convexity explains why price change estimates using modified duration increase in error as the yield changes, generally by more than 100 basis points. Bonds with positive (negative) convexity have increased (decreased) duration as interest rates fall (rise). Bonds with positive convexity, such as those with put options, have returns higher than those predicted by duration alone. Mortgage-backed securities and callable bonds generally have negative convexity, which means that the price increase predicted by duration for a steep rate decline is too high.
SELF-CONTRUCT ASSETS is the costs incurred to build it yourself.
ANNUALIZE is a statistical technique whereby figures covering a period of less than one year are extended to cover a 12-month period. The technique, to be accurate, must take seasonal variations into consideration.
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