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Another area of application of Taylor series approximation is study of
sensitivity of the price of a bond to interest change. In my Calculus for
business classes, I have used the Taylor series approximation to the price
of a bond to show how the duration and convexity is obtained. After
obtaining the formulas, I show how it is used to obtain approximate
changes using different interest rates.
The calculations are fairly routine. But students learning Calculus
for the first time enjoy the connection between theory and practice.
Some of the Investment acturies on the list might want to elaborate on
Middle TN State University
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