Questions from Business Statistics

Q: Explain the difference between a regular credit default swap and a binary

Explain the difference between a regular credit default swap and a binary credit default swap.

Q: Suppose that in the risk-neutral Vasicek process a=0

Suppose that in the risk-neutral Vasicek process a=0:15, b=0:025, and =0.012. The market price of interest rate risk is -0:2. What are the risk-neutral and real-world processes for (a) the short rat...

Q: Suppose that in a risk-neutral world the CIR parameters are

Suppose that in a risk-neutral world the CIR parameters are a =0:15, b = 0:025, and =0.075. What is the price of a 5-year zero-coupon bond with a principal of $1 when the short rate is 2.5%?

Q: Suppose that the market price of risk of the short rate is

Suppose that the market price of risk of the short rate is
. Show that if the real-world process for the short rate is the one assumed by CIR, the risk-neutral process has the same functional form. D...

Q: In the two-factor extension of Vasicek given in Section 31

In the two-factor extension of Vasicek given in Section 31.5, derive the differential equations which must be satified by a bond price, P(t,T). Use this to derive differential equations that must be s...

Q: What is the effect of changing
from 0.94 to

What is the effect of changing
from 0.94 to 0.97 in the EWMA calculations in the four index example at the end of Section 23.8. Use the spreadsheets on the author’s website.

Q: Suppose that the price of gold at close of trading yesterday was

Suppose that the price of gold at close of trading yesterday was $600 and its volatility was estimated as 1.3% per day. The price at the close of trading today is $596. Update the volatility estimate...

Q: Why is there a potential asymmetric information problem in credit default swaps

Why is there a potential asymmetric information problem in credit default swaps?

Q: Does valuing a CDS using real-world default probabilities rather than

Does valuing a CDS using real-world default probabilities rather than risk-neutral default probabilities overstate or understate its value? Explain your answer.

Q: Technical Note 13 at www-2.rotman.utoronto.

Technical Note 13 at www-2.rotman.utoronto.ca/hull/Technical Notes provides a different approach to valuing lookbacks. Value the lookback in Problem 27.19 using this approach. Show that it gives the s...