Of course, there is. One of the major drawbacks of the modified duration and convexity measures is that they are based on the assumption that all promised cash flows to a bond will actually be made. This is not necessarily the case for a bond containing an embedded option. In particular, with an embedded call option, the bond can be repurchased prior to maturity by the issuer. This will result in the last few years’ worth of cash flows not being received by the bond owner. As a result, the modified duration and convexity measures may not accurately reflect the risk of this bond.

In order to overcome this problem, two alternative measures were developed: effective duration and effective convexity. With these measures, a model of the term structure of interest rates is needed. Within the model, yields are increased by a specified number of basis points, and the impact on the price is observed. Yields are then decreased by the same number of basis points, and the impact on the price is observed. This measure is a lot more complicated since it entails simulation and hence doing it manually or even with spread sheets can be quite a challenge. The best way to do these complex calculations is through a high power computer program and an algorithmic function for execution.