Convexity

The curvature in the relationship between a bond's price and its yield, which duration alone misses.

Because the relationship is curved, a duration estimate understates the gain when yields fall and overstates the loss when they rise. Positive convexity is therefore valuable to a holder.

For large yield moves the correction matters, and for small ones it is negligible, so duration alone is adequate for most day-to-day work.

Bonds with embedded options can have negative convexity, which behaves the opposite way and is why callable bonds trade cheaply.