Journal of Computational Finance
ISSN:
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Need to know
- A novel method based on Malliavin calculus is developed to approximate convexity adjustments in a general interest rate model.
- Convexity adjustments are calculated for commonly traded interest rate products, including Futures, OIS Futures, FRAs, and CMSs.
- Numerical experiments verify the accuracy of the analytical results obtained.
Abstract
In this paper, we develop a new method based on the Malliavin calculus to approximate the convexity adjustment for various classical interest rate products. Malliavin calculus provides a simple way to get a template for the convexity adjustment. We find the approximation for futures, overnight index swap futures, forward rate agreements and constant maturity swaps within a general family of one-factor Cheyette models. In addition, we show the high accuracy of the numerical results obtained from the formulas.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
