The debacle in mortgage lending that spurred wild daily swings in the markets has tripped up many hedge funds.

But it has been a boon to Convexity Capital Management, the giant hedge fund that makes arcane trading bets that benefit from volatility. As a result of trades involving credit default swaps and cross-currency option trades, the fund, which had been down about 4 percent through May, was up nearly 12 percent through July.

To be sure, Convexity is not the only hedge fund that has benefited from the fallout over mortgage-backed securities and the tighter credit market.

Paulson Credit Opportunities, a $2 billion fund that bet against subprime lending, has more than tripled through July, according to an individual close to Paulson Credit who asked not to be identified.

And some smaller funds, like Balestra Capital, which bet against mortgage-backed bonds, have also benefited. That fund, which is now worth $206 million, is up 84.7 percent through July.

Convexity, however, has drawn significant attention. The fund, which was started last year with $6.3 billion, was the largest hedge fund start-up. It is run by Jack R. Meyer, who was the chief executive of the Harvard Management Company and oversaw Harvard University抯 endowment for 15 years.

For most of that period, Harvard抯 15.9 percent annual compound growth was second only to Yale, which has earned 16.3 percent over the last 21 years.

So eager were investors to pour cash into Convexity, based in Boston, that Mr. Meyer could have easily raised additional start-up money, according to hedge fund specialists, even though the initial investment required a three-year commitment.

For a year and a half, however, returns were disappointing. The fund, which was started in February 2006, was down 4 percent that year and had fallen another 4 percent through May.

Because Mr. Meyer had produced such strong, consistent results at Harvard, Convexity抯 troubles became the subject of endless speculation.

But the recent volatility has enabled a turnaround.

When Mr. Meyer and his team were at Harvard, the endowment was known for making money by betting on small pricing differences between different kinds of securities.

For example, Mr. Meyer and his team might capitalize on the price difference between new Treasury issues and older ones. And to magnify gains, they would leverage those bets as much as 15 to 1.

But in 2006, when Convexity started, volatility in the fixed-income markets declined significantly. Although Mr. Meyer declined to comment for this article, several hedge fund specialists said the decline undermined the value of the fund抯 option positions and wiped out any value the firm got from its trades.

Then came the market turmoil of recent months. Among other things, Convexity has made a long bet on credit default swaps, which are essentially a form of insurance against companies defaulting on bonds. As concerns about defaults have risen, the cost of that insurance has increased and the value of default swaps has soared.

Other Convexity trades are far more complex and esoteric.

For example, the fund benefited this year from cross-currency option trades, the result of movements in the underlying exchange rates of one country抯 currency compared with another. Convexity bought cheap options on the currencies to capture the movements. The fund also benefited from volatility in bonds indexed to inflation.

Though Mr. Meyer and his group are still highly leveraged, the ratio is about five to one, far lower than it had been at Harvard, according to several people with knowledge of the fund who asked not to be identified.

Perhaps the best-known beneficiary of Convexity抯 recent turnaround is the Harvard endowment. When the endowment, now led by Mohamed A. El-Erian, released its returns for fiscal 2007, it said that it had not lost money in July but had had a 0.4 percent gain.

The announcement was meant to reassure Harvard after the loss of $350 million in Sowood Capital Management, a hedge fund started by former Harvard money managers that was forced to sell its portfolio and return $1.5 billion to investors.

Although Harvard did not go into details, the returns at Convexity, where it had invested $500 million, undoubtedly helped to offset the loss on Sowood.

When Mr. Meyer started Convexity, he was joined by his two top lieutenants at Harvard, David Mittelman and Maurice Samuels, who had been criticized by Harvard alumni after reports that in 2005 Mr. Mittelman had earned $18 million and Mr. Samuels had earned $16.9 million.

The team has created an almost identical strategy at Convexity.

According to several people close to the fund who asked not to be identified, investors can select a benchmark, and compensation is determined by how much the fund makes over that point, on the theory that managers should not benefit unless they add value.

For example, if a benchmark is up 5 percent and Convexity is up 11 percent, the fund is entitled to 20 percent of the profit on the 6 percent difference. (Many funds would calculate profit on the entire 11 percent.)

Convexity is similar to many funds in using a 揾igh water mark.?If a negative year is followed by a positive year, managers do not receive compensation until the fund has recouped the losses from the bad year.