The paper considers the simulation of the Black, Derman, Toy model with log-normally distributed rates in the spot measure, simulated in discrete time and with a continuous state variable. We note an explosive behaviour in the Eurodollar futures convexity adjustment at a critical value of the...

This paper studies total positivity and relative convexity properties in option pricing models. We introduce these properties in the Black-Scholes setting by showing the following: out-of-the-money calls are totally positive in strike and volatility; out-of-the-money puts have a reverse sign...