A convexity measure that captures the the approximate change in a bond‘s dollar price that is not explained by duration.

Dollar convexity= convexity × initial bond price

The dollar price change that is caused by convexity can be calculated, using dollar convexity, as follows:

Dollar price change= ½ × dollar convexity × (yield change)²

For example, if a bond’s convexity and price are 9.5 and 100, respectively. It follows that its dollar convexity is:

Dollar convexity= 9.5× 100 = 950

Using dollar convexity, and assuming a 350 basis point change in yield (i.e., 3.5%), the dollar price change is:

Dollar price change= ½ × 950 × (3.5%)² = 0.4275

This means the bond’s convexity is responsible for a dollar price change of 0.4275.

Dollar convexity measures the dollar value of the curvature of the price/yield curve.