Questions from Business Statistics

Q: Prove equations (32.15), (32.16),

Prove equations (32.15), (32.16), and (32.17).

Q: Can the approach described in Section 32.2 for decomposing an

Can the approach described in Section 32.2 for decomposing an option on a coupon-bearing bond into a portfolio of options on zero-coupon bonds be used in conjunction with a two-factor model? Explain y...

Q: Suppose that a =0:1, b =0:

Suppose that a =0:1, b =0:08, and
in Vasicek’s model, with the initial value of the short rate being 5%. Calculate the price of a 1-year European call option on a zero-coupon bond with a principal of...

Q: Use the answer to Problem 32.5 and put–call

Use the answer to Problem 32.5 and put–call parity arguments to calculate the price of a put option that has the same terms as the call option in Problem 32.5.

Q: In the Hull–White model, a = 0:08

In the Hull–White model, a = 0:08 and
. Calculate the price of a 1-year European call option on a zero-coupon bond that will mature in 5 years when the term structure is flat at 10%, the principal of...

Q: Explain the difference between a Markov and a non-Markov model

Explain the difference between a Markov and a non-Markov model of the short rate.

Q: The LIBOR/swap curve is flat at 3% with continuous

The LIBOR/swap curve is flat at 3% with continuous compounding and a 4-year bond with a coupon of 4% per annum (paid semiannually) sells for 101. How would an asset swap on the bond be structured? Wha...

Q: Prove equation (33.15). /

Prove equation (33.15).

Q: Prove the formula for the variance
of the swap rate in

Prove the formula for the variance of the swap rate in equation (33.17).

Q: Show that the swap volatility expression (33.19) in

Show that the swap volatility expression (33.19) in Section 33.2 is correct.