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Convexity of a multiple of a CMS rate
I have to price a swap that pays :Leg 1 = 6m libor Fixing in advance payment in arrears + premiumLeg 2 = CMS10 x 2 Fixing in advance payment in arrears On the CMS10, I calculate a convexity adjustment.but I am wondering…can I just do (CMS10 + adjustment)*2 ? is it correct?Thanks.
Last edited by Diskiss on November 7th, 2005, 11:00 pm, edited 1 time in total.
Convexity of a multiple of a CMS rate
double post
Last edited by Diskiss on November 7th, 2005, 11:00 pm, edited 1 time in total.
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- Sgaragnaus
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Convexity of a multiple of a CMS rate
Uh? That's right of course.P = DF(0) * E_t2 [ 2 * SW(t1,t1,T) ] = 2 * DF(0) * E_t2 [ SW(t1,t1,T) ] = 2 * DF(0) * [ SW(0,t1,T) + Conv. Corr.]