Menu
Home
People
Places
Arts
History
Plants & Animals
Science
Life & Culture
Technology
Reference.org
Convexity (finance)
open-in-new
<p>In <a href="/facts/Mathematical_finance/P9otEltQ">mathematical finance</a>, convexity refers to non-linearities in a <a href="/facts/Financial_model/Qhk0pV2W">financial model</a>. In other words, if the price of an underlying variable changes, the price of an output does not change linearly, but depends on the <a href="/facts/Second_derivative/3aA6j4EY">second derivative</a> (or, loosely speaking, <a href="/facts/Higher-order_terms/JWrNgbVm">higher-order terms</a>) of the modeling function. Geometrically, the model is no longer flat but curved, and the degree of curvature is called the convexity. </p>