Convexity adjustments \`a la Malliavin
Mathematical Finance
2023-08-28 v2
Abstract
In this paper, we develop a novel method based on Malliavin calculus to find an approximation for 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, OIS Futures, FRAs, and CMSs under a general family of the one-factor Cheyette model. We have also seen the excellent quality of the numerical accuracy of the formulas obtained.
Keywords
Cite
@article{arxiv.2304.13402,
title = {Convexity adjustments \`a la Malliavin},
author = {David García-Lorite and Raul Merino},
journal= {arXiv preprint arXiv:2304.13402},
year = {2023}
}