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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

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Date posted: October 28, 2004 ; Last revised: November 11, 2004

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Piterbarg, Vladimir and Renedo, Marco Antonio, Eurodollar Futures Convexity Adjustments in Stochastic Volatility Models (February 4, 2004). Available at SSRN: http://ssrn.com/abstract=610223

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Contact Information

Vladimir Piterbarg (Contact Author) Barclays Capital ( email ) London EC3P 3AH United Kingdom
Marco Antonio Renedo Bank of America - Quantitative Research ( email ) 233 South Wacker Drive, Suite 2800 Chicago, IL 60606 United States

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Abstract

Citations (1)

Date posted: October 28, 2004 ; Last revised: November 11, 2004

Suggested Citation

Contact Information

Vladimir Piterbarg (Contact Author)

Marco Antonio Renedo