Journal of Computational Finance

Risk.net

Eurodollar futures convexity adjustments in stochastic volatility models

Vladimir V. Piterbarg, Marco A. Renedo

ABSTRACT

A formula that explicitly incorporates volatility smile, as well as a realistic correlation structure of forward rates, in computing Eurodollar futures convexity adjustments is derived. The effect of volatility smile on convexity adjustments is studied and is found to be significant.

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