Eurodollar Futures Convexity Adjustments in Stochastic Volatility Models

19 Pages Posted: 28 Oct 2004

See all articles by Vladimir Piterbarg

Vladimir Piterbarg

NatWest Markets

Marco Renedo

Bank of America - Quantitative Research

Date Written: 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

Suggested Citation

Piterbarg, Vladimir and Renedo, Marco Antonio, Eurodollar Futures Convexity Adjustments in Stochastic Volatility Models (February 4, 2004). Available at SSRN: https://ssrn.com/abstract=610223 or http://dx.doi.org/10.2139/ssrn.610223

Vladimir Piterbarg (Contact Author)

NatWest Markets ( email )

250 Bishopsgate
London, EC2M 4AA
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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