Which of the following statements is true?
A)All assets and liabilities are convex.
B)All fixed-income securities, including those with special option features, are convex.
C)All assets are convex, all liabilities are convex and all fixed-income securities, including those with special option features, are convex.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

Convexity is a measure used primarily in the context of fixed-income securities to describe the relationship between bond prices and interest rates. Not all assets and liabilities exhibit convexity. Moreover, fixed-income securities with special option features, such as callable or putable bonds, do not have simple convex relationships due to the embedded options affecting their price behavior. Therefore, the statements suggesting universal convexity are incorrect.

Which of the Following Statements Is True