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Kamil90
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Posts: 178
Joined: February 15th, 2012, 2:02 pm

OIS convexity adjustment

August 1st, 2016, 7:14 pm

Can anyone point out a reference about FEDF convexity adjustment? Typically, there is a convexity adjustment explained in terms of 2 different measures and the difference between the two(think CMS convexity adjustment or future/forward). Is there a paper that explains in the same lines how the convexity adjustment arises between the OIS and FEDF basis swap? Under what measure OIS rate is modeled?
 
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Martinghoul
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Joined: July 18th, 2006, 5:49 am

Re: OIS convexity adjustment

August 1st, 2016, 7:57 pm

I am not entirely sure what FEDF refers to, but is are you perchance describing the whole arithmetic average vs daily compounded malarkey, which creates the need for convexity adjustment?
 
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Kamil90
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Posts: 178
Joined: February 15th, 2012, 2:02 pm

Re: OIS convexity adjustment

August 2nd, 2016, 12:22 pm

yes, exactly, arithmetic vs compounded, what is the measure here and I assume one is a martingale under one measure but we want to price under a different one? (just making a connection to CMS convexity for example)
 
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Martinghoul
Posts: 3256
Joined: July 18th, 2006, 5:49 am

Re: OIS convexity adjustment

August 2nd, 2016, 12:56 pm

Have you seen the paper that everyone mentions in this context by Katsumi Kevin Takada?  You can find it here.
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