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Patrick Hagan and Diana Woodward offer an analytical formula that allows us to circumvent the issue of using a replication argument to value a convexity adjustment. Under the assumption that the market follows a stochastic alpha beta rho model, they show the convexity adjustment can be valued using an analytical and simple formula
Many common deal types require convexity corrections. Constant maturity swaps, caps and floors require convexity corrections, as do
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