Calculate the value of a zero coupon bond

Assignment Help Financial Econometrics

Reference no: EM131241230

Construct a trinomial tree for the Ho-Lee model where σ = 0:02. Suppose that the the initial zero-coupon interest rate for a maturities of 0.5, 1.0, and 1.5 years are 7.5%, 8%, and 8.5%. Use two time steps, each 6 months long.

Calculate the value of a zero-coupon bond with a face value of $100 and a remaining life of 6 months at the ends of the final nodes of the tree. Use the tree to value a 1-year European put option with a strike price of 95 on the bond.

Compare the price given by your tree with the analytic price given by DerivaGem.

Reference no: EM131241230

Questions Cloud

Calculate the continuously compounded annual return : CFE5305: FINANCIAL TIME SERIES ANALYSIS - Calculate the continuously compounded annual return for the Petrobras stock for 2009. Calculate the simple annual return for 2009 and explain the Jarque-Bera (J-B) test. Using this test, what conclusion can ..

What is the net present value of the investment opportunity : If you undertake the investment opportunity, what is the Nominal Payback Period? Using the factors for 6%, what is the Discounted Payback Period? What is the Net Present Value of this investment opportunity?

Compute aic bic and aicc as in multinomial regression model : Note that the proportional odds model assumes both the ordinality of the response and equal coefficients across different logits. Based on the information criteria, is there evidence to suggest that these assumptions lead to a poor model fit? Expl..

Discuss understanding of contract law : Discuss, incorporating your understanding of contract law, the following:- Whether a contract was formed. If so, when was it formed and who were the contracting parties? Bernard's legal position and remedies

Calculate the value of a zero coupon bond : Calculate the value of a zero-coupon bond with a face value of $100 and a remaining life of 6 months at the ends of the final nodes of the tree.

How do government usually bring inflationary process to halt : How do Governments usually bring an inflationary process to a halt? Briefly explain how their strategies to deal with rising inflation could sometimes be counterproductive in the longer term.

What skills and traits do you believe make a good manager : "What makes a strong manager?" Please respond to the following: What skills and traits do you believe make a good manager? Do you think these skills and traits are learned or innate, and why?

Calculate the price of the option when it is american : Assuming a normal model, imply the parameter from the price of the European option. - Use the σ parameter to calculate the price of the option when it is American.

Calculate the average velocity of the wrench : (i) Calculate the average velocity of the wrench during the 1.429 second interval. (ii) Calculate the instantaneous velocity of the wrench when it passes the second observer. (iii) Calculate the vertical distance the wrench has fallen from the point..

User Account

All Pages