CALCULATION OF THE CONVEXITY ADJUSTMENT TO THE FORWARD RATE IN THE VASICEK MODEL FOR THE FORWARD IN-ARREARS CONTRACTS ON LIBOR RATE

摘要

We calculate the convexity adjustment to the forward rate in the Vasicek model for the in-arrears forward contracts. With the help of the no-arbitrage market condition it is shown that such an adjustment should be non-negative. Analytical formulas are found for the in-arrears interest rate options.