Monday, November 5, 2018

Why is there a convexity adjustment if the payment date differs from Libor end date?


A 3 month LIBOR that fixing at $T$, paying in 3 months does not have a convexity adjustment.


However, 3 month LIBOR fixing at $T$, paying in 6 months needs a convexity adjustment.


How is this shown mathematically and how would one compute the value of this adjustment?




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