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Pricing convexity adjustment with Wiener chaos

Benhamou, Eric (2000) Pricing convexity adjustment with Wiener chaos. Financial Markets Group Discussion Papers (351). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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This paper presents an approximated formula of the convexity adjustment of Constant Maturity Swap rates, using Wiener Chaos expansion, for multi-factor lognormal zero coupon models. We derive closed formulae for CMS bond and swap and apply results to various well-known one-factor models (Ho and Lee (1986), Amin and Jarrow(1992), Hull and White (1990), Mercurio and Moraleda (1996)). Quasi Monte Carlo simulations confirm the efficiency of the approximation. Its precision relies on the importance of second and higher order terms.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2000 The Author(s)
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
Date Deposited: 29 Jun 2023 11:51
Last Modified: 16 Sep 2023 00:02

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