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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.
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7 years, 6 months ago
7 years, 5 months ago