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91 views

Convexity adjustment--Assume sport and futures rates move together?

A cash flow argument I typically see for why a convexity adjustment is necessary is the following (taken loosely from Hull 9/e, p. 143): Say I am short an interest rate futures contract (e.g. ...
1
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2answers
170 views

Bond Convexity and Maturity

What the reasoning for why bond convexity increases with maturity. Heuristic explanations are somewhat better as I would like a fundamental understanding. Also what causes a more convex bond to be ...
1
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1answer
862 views

High convexity vs low convexity bond definition

Isn't high convexity always better than low convexity bond from the formula that $$\frac {ΔB} B=-D \frac {Δy} {1+y} + \frac 1 2 CΔy^2$$ Since $\frac 1 2 CΔy^2$ is positive no matter what so the price ...
1
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1answer
441 views

From continuous compounding to simple compounding - convexity adjustment

I have derived the convexity adjustment expression for futures rates using the Ho-Lee model, to arrive at the following: $$ ForwardRate = FuturesRate - \frac{1}{2}\sigma^2T_1T_2 $$ where $T_1$ refers ...
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0answers
100 views

Pricing inflation lags

I've been looking into a short piece of maths I found on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding was correct or if the maths isn't quite ...
4
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0answers
132 views

Inflation/Rates Correlation

I've been looking into a short piece of maths a colleague has written on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding is correct, or if my ...