Constant maturity asset swap convexity correction

The current high volatility in government bond markets may lead investors to try to hedge their exposure to floating-asset swap spreads. Mario Pucci obtains an analytical convexity correction for the asset swap spread that is useful for pricing constant maturity asset swaps

Most financial market players trade in government bond markets. For example, European financial institutions are heavily exposed to long positions in sovereign debt to raise funding at European Central Bank rates, and pension funds traditionally include Treasury bonds in their asset portfolio to obtain cashflows offsetting their liabilities. More generally, sovereign debt has always been seen as a