SQF2: Convexity Adjustment in Interest Rate Derivative Pricing
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SQF2: Convexity Adjustment in Interest Rate Derivative Pricing

A Practical Guide

About the Book

This is the 2nd episode of the Summaries in Quantitative Finance series. It serves as a practical guide on convexity adjustment in interest rate derivative pricing. The aimed readers are pricing quants. The goal here is that after reading the book, readers should be able to implement convexity adjustment by themselves in a derivative pricing library (hence the subtitle, "A Practical Guide"). This book summarizes relevant texts from the following references:

[1] W. Boenkost and W. Schmidt. Notes on convexity and quanto adjustments for interest rates and related options. Working paper. October 2003.

[2] W. Boenkost and W. Schmidt. Interest rate convexity and the volatility smile. Working paper. May 2006.

[3] P. Hagan. Convexity conundrums: Pricing CMS swaps, cpas, and floors. Wilmott Magazine, March, p.38-44.

[4] P. J. Hunt and J. E. Kennedy. Financial derivatives in theory and practice. Revised Edition, Wiley, 2004.

[5] J. Hull. Options, futures, and other derivatives. Fourth Edition. Prentice-Hall, 2000.

[6] A. Lesniewski. Convexity.

[8] A. Pelsser. Mathematical foundation of convexity correction. Wroking paper. April 8, 2001.

About the Author

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