Pricing Convexity Adjustment with Wiener Chaos
AbstractThis 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.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp351.
Date of creation: Apr 2000
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