Comment on the following statement: “If an interest-rate model allows the possibility of negative interest rates, then it is not useful in practice.”
Answer to relevant QuestionsAnswer the below questions. (a) What is meant by historical volatility? (b) What is meant by implied volatility? Answer the below questions. (a) What is meant by a normal model of interest rates? (b) What is meant by a lognormal model of interest rates? In Robert Litterman, Jose Scheinkman, and Laurence Weiss, “Volatility and the Yield Curve,”Journal of Fixed Income, (Premier Issue, 1991), p. 49, the following statement was made: “Many fixed income securities (e.g., ...What is the static spread for a three-year 9% coupon corporate bond selling at 105.58, given the following theoretical Treasury spot rate values equal to 50, 100, or 120 basis points? Period Spot Rate (%) ...Explain how, given the cash flow on the simulated interest-rate paths, the theoretical value of a RMBS is determined.
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