Mathematical Finance (q-fin.MF)
Wed, 26 Apr 2023
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1.Convexity adjustments à la Malliavin
Authors:David García-Lorite, Raul Merino
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.