Arbitrage analysis on the futures & forwards interest rate markets. Convexity adjustment approach in pre-crisis period

      Аннотация: We introduce probabilistic stochastic interest rate models in continuous time. For selected models we discuss the difference between forward and futures interest rates; convexity adjustment. In the final part of the study, we analyze the arbitrage existence between interest rates and currency exchange rates (evaluated on Ho-Lee model). Due to high sensitivity of convexity adjustment to the applied time series stability, we investigate the equilibrium in the pre-crisis period.

Ключевые слова: Futures, arbitrage, Interest Rate Models, Convexity Adjustment, Forward Rates