How do you replicate the payoff of a constant maturity swap rate?
That is, if the payoff of a contract pays the 5-year swap rate every year for 10 years, how would you replicate this payoff using swaptions?
A good place to start is Hagan's paper Convexity Conundrum ...available on the web.
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
3 years ago