Swap in advance, swap in arrears

pierrelefou · August 30th, 2007, 5:42 am

I need some clarification on this subjectIs it necessary to have convexity adjustment for the swap "in arrears" ? Is it necessary to have a convexity adjustement for the swap "in advance"? In the Hagan's paper, it is said that we need conv adj for both set in advance and set in arrears swapwherease in some sources, like in the Hull, it is said that conv ad is only necessary for set in arrears swap.

jedi · August 30th, 2007, 5:15 pm

Conv adj is required for "non-natural time lag" cash flows.