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Quantitative Finance · Glossary

What is Linear terminal swap-rate model?

Definition 6.6 Rates, Credit, XVA and Risk · Chapter 6 — Convexity Adjustments and Constant-Maturity Products

The linear terminal swap-rate model sets $P(T,T_p)/A(T) = a_0 + a_1S(T)$ , with $a_0 = 1/\sum_i\delta_i$ (the value when all rates are zero) and $a_1$ chosen so that the relation holds today: $a_0+a_1S(0) = P(0,T_p)/A(0)$ .

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