How Does the Concept of Convexity in Bond Derivatives Compare to Gamma in Options?

Convexity in bond derivatives is analogous to Gamma in options. Convexity measures the rate of change of a bond's duration (its first-order sensitivity to interest rate changes), making it the second derivative of the bond price with respect to interest rates.

Similarly, Gamma measures the rate of change of an option's Delta (its first-order sensitivity to asset price changes), making it the second derivative of the option price. Both measure the non-linear relationship between the derivative price and the underlying factor.