Convexity adjustments \`a la Malliavin

David Garc\'ia-Lorite and Raul Merino

Papers from arXiv.org

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.

Date: 2023-04, Revised 2023-08
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2304.13402

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