大阪大学　数理・データ科学教育研究センター
Center for Mathematical Modeling and Data Science,The University of Osaka

Convexity Adjustment of Arithmetic Average RFR Caplet with Asymptotic Expansion

中島　亮 (オメガ・パートナーズ)

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4. Convexity Adjustment of Arithmetic Average RFR Caplet with Asymptotic Expansion

大阪大学 数理・データ科学セミナー 金融・保険セミナーシリーズ 第156回

Convexity Adjustment of Arithmetic Average RFR Caplet with Asymptotic Expansion

中島　亮 (オメガ・パートナーズ)

I derive the convexity adjustment for the valuation of arithmetic average risk free rate (RFR) caplet, and the underlying asset is driven by backward-looking SABR model. I use the results of the asymptotic expansion to get more accurate results than Nakashima [NR2025]. In order to confirm the accuracy of my convexity adjustment, I compare the volatilities calculated from the convexity adjustment with asymptotic expansion, the volatilities calculated from [NR2025], and the volatilities calculated from the Monte Carlo method.

[NR2025] Nakashima, R. (2025). Convexity Adjustment of Arithmetic Average RFR Caplet with the SABR Model.