Questions tagged [convexity]
The convexity tag has no usage guidance.
5
questions
9
votes
3answers
2k views
What is the correct convexity adjustment for an Interest Rate Swap with unnatural reset lag?
I am looking at the valuation of an Interest Rate Swap (IRS thereafter) which is pretty much vanilla with one small tweak. Floating leg pays 3 months LIBOR in monthly intervals. To be precise: ...
0
votes
2answers
187 views
Why are FRA/futures convexity adjustments necessary?
This would be my explanation for the reason that convexity adjustments must exist:
Futures are margined daily, such that if a trader is paid a future and rates goes up then money is paid into their ...
8
votes
5answers
19k views
Convexity adjustment for a forward swap rate
I recently heard that for a forward swap rate (for example, the fixed rate of a swap that will start in one year and end in five years), I need to do a convexity adjustment in order to get the right ...
6
votes
1answer
2k views
Sharpe Maximization under Quadratic Constraints
When doing Sharpe optimization
$$
\max_x \frac{\mu^T x}{\sqrt{x^T Q x}}
$$
there is a common trick (section 5.2) used to put the problem in convex form. You add a variable $\kappa$ such that $x = ...
1
vote
1answer
163 views
20s30s curve convexity
Let’s assume I trade a 20s30s spread on the curve and i’m flat delta (-100k on 20Y swap, 100k on 30y swap dv01).
If the market moves, i’m not flat delta anymore.
Is there a simple way to estimate the ...
