SABR model convexity adjustment for an arithmetic average risk-free rate swap

A model-independent convexity adjustment for interest rate swaps is introduced


Georgios Skoufis derives a model-independent convexity adjustment formula for the valuation of a discrete arithmetic average risk-free interest rate swap. The convexity adjustment is expressed as a symmetric quadratic swap on the canonical daily compounded risk-free rate (RFR) index. The results are then specialised to the case of the stochastic alpha-beta-rho model for an RFR index, where they provide a closed-form valuation of the convexity adjustment that is

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