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Eurodollar Futures Convexity Adjustments in Stochastic Volatility Models
Vladimir Piterbarg Barclays Capital Marco Renedo Bank of America - Quantitative Research February 4, 2004 Abstract: A formula that explicitly incorporates volatility smile, as well as a realistic correlation structure of forward rates, in computing Eurodollar futures convexity adjustments is derived. The effect of volatility smile on convexity adjustments is studied and is found significant.
Keywords: Eurodollar convexity adjustment, stochastic volatility, volatility smile, forward Libor models Working Paper SeriesDate posted: October 28, 2004 ; Last revised: November 11, 2004Suggested Citation |
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