Questions tagged [convexity]
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117 questions
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Exercise 30.2 on Hull's OFOD
In Hull's Options, Futures, and Other Derivatives, there is the following exercise in Chapter 30:
Explain whether any convexity or timing adjustments are necessary when:
(a) We wish to value a spread ...
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Convexity in long end treasury bonds
According to published research, yield curves plotted against duration typically exhibit steepening forces as investors demand higher return for longer yields, but that often in the very long-end, ...
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Approx. for futures / forward convexity adjustment in ATS models
I'm not an IRD expert, so bear with me. I'd like to have a quick and dirty approximation for the (SOFR) futures/forward convexity adjustment under affine term structure models in continuous time.
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SOFR futures convexity adjustment versus SOFR swaps
Since SOFR swaps are centrally cleared, daily variation margin has to be posted to the CCP, and if I am not mistaken, this is done in cash. If so, this is the same mechanism as CME SOFR swap futures. ...
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Bond Option Convexity
As part of my learning, I came across bond convexity and was wondering how that would apply to bond options, as in would it be the expectation of ytm ? How do we define it? Are there any good articles/...
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Pricing formula for a FX forward with delayed payment
A typical FX forward trade would settle the foreign currency 2 days after the fixing of the FX rate. The forward leg of this trade would be priced by discounting in the domestic currency the value of ...
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How do I reformulate this max GMV ratio constraint in convex way?
Let $n$ be the number of stocks in my portfolio. I would like to have the following inequality constraint in my optimization problem
$$ |x_i| \le \alpha \sum_{j=1}^n | x_j | $$
where $\alpha$ is known,...
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sharpe ratio, convert into convex function, not understand that constraint, [duplicate]
I am reading about tranforming sharpe ratio into convex problem
After some following, its converted into min xTxy s.t. (u-rf e)x = 1
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How do I calculate implied convexity from futures vs swaps?
From STIR Futures - Trading Euribor and Eurodollar futures
by Stephen Aikin, convexity is determined by comparing the zero rate on a swap with an equivalent set of futures. For example, using futures,...
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Smile Skew and Convexity Exposure
We're all familiar with the Greeks (Delta, Gamma, Vega, etc.). They provide a quantified exposure to various risk factors. But what about skew and convexity? Is there a similar standardized way to ...
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Zero Coupon Swaps Convexity Adjustments
Can i check here if convexity adjustments are needed for zero coupon swaps?
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SOFR futures options
I am trying to take convexity adjustments into account in the bootstrap on the SOFR curve.
I am using cash for the upfront, SOFR swaps from 2Y to the end.
In the mid term I use 2 1M SOFR futures and 7 ...
- 281
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Quantifying the impact of rates change on bond prices
How can I quantify the impact of a change in interest rates on bond prices?
I know that in a classical textbook setting the answer would be to compute the modified duration of the bond and, to account ...
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Convexity adjustment for futures/FRA under T+D measure
In an internal document in my company, the convexity adjustment for Futures is defined as:
where and P(0,T+D) is the ZC bond maturity at T+D.
I don't understand why is not equal to 1 as I thought ...
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Payment Delay Convexity Adjustment Formula for RFR Rates
For Libor we have the following Convexity adjustment formula for payment delay (under normal model)
$$CA = P(0,T_e,T_p)\rho\sigma_e^L\sigma_p^L\Delta_e^p(T_s-t_0)$$
where
$T_s$ is the period start ...
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How am I supposed to understand the following statement on the convexity adjusted rate
Given, a numéraire $(N(t))_{0\leq t \leq T}$ and an index $(X(t))_{0\leq t\leq T}$ that is a $\mathbb Q^{N}$-martingale, we consider the natural payoff $V_{N}(T)$, where it pays
$$V_{N}(T):=X(T)N(T) \...
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What are the causes of positive convexity in the mortgage market?
In general, mortgage assets are negatively convex. However, I've seen cases of positive convexity and have never seen an adequate explanation for why this might be the case. I suspect it has ...
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FX options: is convexity usually heavily overpriced?
I have access to daily vol quotes for EURUSD options from 2006 to today. I was playing around with them and constructed a "daily rolled backtest" for various options constructs, like ...
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Influence of Maturity and Yield on Convexity
I recently took a quiz in which one question asked me to choose one answer that is true regarding convexity. One of the answers said that a longer maturity leads to a higher convexity, another answer ...
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Convexity in a DV01 neutral trade
I have got a question about DV01 neutral trades. Generally speaking: if you perform a 2s10s steepener on a generic govt yield curve, would convexity be a risk? If so, in what measures?
Technically, as ...
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QuantLib Python: how to calculate duration and convexity for irregular cashflows? Can I use SimpleCashFlow or must I define a custom bond?
I have 2 questions:
If I want to discount a set of irregular cashflows, I can do it using the SimpleCashFlow class, or defining a bond with custom cashflows (thank you to Ballabio and David Duarte for ...
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Gamma/Convexity of a Swap vs a similar bond
As a rule of thumb, how would the duration and convexity of a 30y UST bond paying X% compare to the duration and convexity of a matched maturity vanilla interest rate swap, with a similar fixed rate.
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Duration and Convexity
I am searching to estimate the evolution of my portfolio duration following a yield increase/decrease.
Can i use the convexity?
I mean IR delta x (- convexity) = Duration delta
Is it correct?
Thanks a ...
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How to transform a cubic optimisation problem into a quadratic for portfolio allocation
I have the following cost function for portfolio allocation:
$$
w^T\mu-\frac{1}{2}\gamma w^T\Sigma w+\frac{1}{6}\gamma^2 w^TM_3(w\otimes w),
$$
which considers also the co-skewness ($M_3$ tensor), $\...
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Leveraged ETF pair trade, where's the gamma/convexity?
I'm trying to better understand leveraged etfs, and specifically how they have convexity and volatility decay similar to options.
An older post on this site asked a similar question and one of the ...
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