A Primer on Convexity Adjustments for Libor in Arrears and Constant Maturity Swaps - Part 1

2010 ◽  
Author(s):  
Ram Srinivasan
Keyword(s):  
Constant Maturity Swaps

scholarly journals Convexity adjustment for constant maturity swaps in a multi-curve framework

2017 ◽  
Vol 266 (1-2) ◽  
pp. 159-181 ◽  
Author(s):  
Nikolaos Karouzakis ◽  
John Hatgioannides ◽  
Kostas Andriosopoulos
Keyword(s):  
Convexity Adjustment ◽  
Constant Maturity Swaps

CMS, CMS SPREADS AND SIMILAR OPTIONS IN THE MULTI-FACTOR HJM FRAMEWORK

2012 ◽  
Vol 15 (07) ◽  
pp. 1250048
Author(s):  
PIERRE HANTON ◽  
MARC HENRARD
Keyword(s):  
Exact Solution ◽  
Previous Literature ◽  
Exact Equation ◽  
Gaussian Models ◽  
Market Models ◽  
Spread Options ◽  
Approximation Errors ◽  
Constant Maturity Swaps

Constant maturity swaps (CMS) and CMS spread options are analysed in the multi-factor HJM framework. For Gaussian models, which include a version of the Libor Market Models and the G2++ model, explicit approximated pricing formulae are provided. Two approximating approaches are proposed: an exact solution to an approximated equation and an approximated solution to the exact equation. The first approach borrows from previous literature on other models; the second approach is new. For the latter, the price approximation errors are smaller than in the previous literature and negligible in practice. These approaches are being used here to price standard CMS and CMS spreads and can be used for other European exotic products.

scholarly journals A UNIFIED MARKET MODEL FOR SWAPTIONS AND CONSTANT MATURITY SWAPS

2021 ◽  
pp. 2150026
Author(s):  
CHYNG WEN TEE ◽  
JEROEN KERKHOF
Keyword(s):  
Interest Rate ◽  
Market Model ◽  
Approximation Formula ◽  
Internal Rate Of Return ◽  
Main Interest ◽  
Interest Rate Volatility ◽  
Self Consistent ◽  
Industry Practice ◽  
The Difference ◽  
Constant Maturity Swaps

Internal-rate-of-return (IRR) settled swaptions are the main interest rate volatility instruments in the European interest rate markets. Industry practice is to use an approximation formula to price IRR swaptions based on Black model, which is not arbitrage-free. We formulate a unified market model to incorporate both swaptions and constant maturity swaps (CMS) pricing under a single, self-consistent framework. We demonstrate that the model is able to calibrate to market quotes well, and is also able to efficiently price both IRR-settled and swap-settled swaptions, along with CMS products. We use the model to illustrate the difference in implied volatilities for IRR-settled payer and receiver swaptions, the pricing of zero-wide collars and in-the-money (ITM) swaptions, the implication on put-call parity, and the issue of negative vega. These findings offer important insights to the ongoing reform in the European swaption market.

Modifying the LMM to Price Constant Maturity Swaps

2010 ◽  
Vol 18 (2) ◽  
pp. 20-32 ◽  
Author(s):  
Ting-Pin Wu ◽  
Son-Nan Chen
Keyword(s):  
Constant Maturity Swaps

Modifying the LMM to Price Constant Maturity Swaps

2010 ◽  
pp. 100917042135016
Author(s):  
Ting-Pin Wu ◽  
Son-Nan Chen
Keyword(s):  
Constant Maturity Swaps
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