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Quantitative Finance · Glossary

What is CMS convexity adjustment?

Definition 6.5 Rates, Credit, XVA and Risk · Chapter 6 — Convexity Adjustments and Constant-Maturity Products

The CMS convexity adjustment is ETp[Sa,b(T)]−Sa,b(0)\E^{T_p}[S_{a,b}(T)]-S_{a,b}(0): the expectation of the swap rate under the forward measure of its payment date minus its forward, the expectation under the annuity measure.

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