Questions from Business Statistics

Q: ‘‘When the forward rate volatility,
, in HJM is
,

‘‘When the forward rate volatility,
, in HJM is
, the Hull–White model results.’’ Verify that this is true by showing that HJM gives a process for bond prices that is consistent with the Hull–White...

Q: Provide an intuitive explanation of why a ratchet cap increases in value

Provide an intuitive explanation of why a ratchet cap increases in value as the number of factors increase.

Q: Suppose that the risk-free yield curve is flat at 8

Suppose that the risk-free yield curve is flat at 8% (with continuous compounding). The payoff from a derivative occurs in 4 years. It is equal to the 5-year rate minus the 2-year rate at this time, a...

Q: Explain why a sticky cap is more expensive than a similar ratchet

Explain why a sticky cap is more expensive than a similar ratchet cap.

Q: Calculate all the fixed cash flows and their exact timing for the

Calculate all the fixed cash flows and their exact timing for the swap in Business Snapshot 34.1. Assume that the day count conventions are applied using target payment dates rather than actual paymen...

Q: Calculate the total convexity/timing adjustment in Example 34.3

Calculate the total convexity/timing adjustment in Example 34.3 of Section 34.4 if all cap volatilities are 18% instead of 20% and volatilities for all options on 5-year swaps are 13% instead of 15%....

Q: In the accrual swap discussed in the text, the fixed side

In the accrual swap discussed in the text, the fixed side accrues only when the floating reference rate lies below a certain level. Discuss how the analysis can be extended to cope with a situation wh...

Q: Explain how a
option contract for May 2017 on electricity with

Explain how a
option contract for May 2017 on electricity with daily exercise works. Explain how a
option contract for May 2017 on electricity with monthly exercise works. Which is worth more?

Q: Explain how CAT bonds work.

Explain how CAT bonds work.

Q: Consider two bonds that have the same coupon, time to maturity

Consider two bonds that have the same coupon, time to maturity, and price. One is a B-rated corporate bond. The other is a CAT bond. An analysis based on historical data shows that the expected losses...