What is the probability transition matrix q

Reference no: EM131368566

1. You are going to borrow $250m at a floating rate for 5 years. You wish to protect yourself against borrowing rates greater than 10.5%. Using each tree, what is the price of a 5-year interest rate cap? (Assume that the cap settles each year at the time you repay the borrowing.)

2. Suppose that the yield curve is given by y(t) = 0.10 - 0.07e^-0.12t , and that the short-term interest rate process is dr(t) = (θ (t) - 0.15r(t)) + 0.01dZ. Compute the calibrated Hull-White tree for 5 years, with time steps of h = 1.

a. What is the probability transition matrix Q?

b. What is the price of a 5-year 7.5% interest rate cap on a $1 million notional amount?

Reference no: EM131368566

Questions Cloud

What is the general topic of the reading : Write the short summary. What is the general topic of the reading.What are the auther's main point.Why do they feel this topic is important.

Create audiovisual presentation to verbally market a product : In this Assignment, you will create an audiovisual presentation to verbally market a product to another business rather than to consumers

Find five tips regarding business etiquette in the country : Global Strategic Management- Using the globalEDGE website, find five tips regarding business etiquette in the Middle Eastern country of your choice.

Discuss one or two topics that were most salient to you : Discuss one or two topics that were most salient to you.- What changes has this class(Intercultural Communications) inspired? What do you want to do differently? What are your next steps?

What is the probability transition matrix q : You are going to borrow $250m at a floating rate for 5 years. You wish to protect yourself against borrowing rates greater than 10.5%. Using each tree, what is the price of a 5-year interest rate cap? (Assume that the cap settles each year at the ..

Design a data warehouse logical model : Use the four steps matrix method to design a data warehouse logical model (Dimensional Model) for the business case summarized in the following points:

Describe three major characteristics of your audience : Describe three (3) major characteristics of your audience (official position, decision-making power, current view on topic, other important characteristic).Describe the paper's scope and outline the major sections.Identify and explain the question..

What is needed to analyze a companys culture : Provide your opinion on whether or not the questions asked help you understand the organization and how you cope with it. Do they accurately assess what is needed to analyze a company's culture?

Wireless applications-advances-advantages and disadvantages : The adoption of wireless technologies varies from one industry to another, and is often based on the benefits provided versus the challenges, implementation issues, and security issues associated with wireless technologies. Consider the wireless c..

User Account

All Pages