Show that the risk neutral measure Q and the T-forward measure Q T are identical if and

Question:

Show that the risk neutral measure Q and the T-forward measure Q_T are identical if and only if the short rate r_t is deterministic. Also, show that the instantaneous forward rate is given by

F(t, T) = EQTT e-Siru du B(t, T) where B(t, T) is the time-t price of the T -maturity discount bond.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For answer-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

See More Books

Question Posted: Nov 30, 2023 07:31 AM

See More Questions

Let Y(t; ) denote the yield at time t for a discount bond with a fixed time to maturity . The average of the constant maturity yield Y(t; ) over a prespecified time period (0,T ] is given by We...
The dynamics of the instantaneous forward rate F(t,T ) under the risk neutral measure Q is governed by where (Z 1 (t)Z m (t)) T is an m-dimensional Brownian process under Q. Let (W 1 (t) W m (t)) T...
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
According to Dr. Grant, creatives are people who ________. A. Are procrastinators B. Act on multiple ideas C. Plan out each detail D. Are highly confident with no doubts about their success
In order of importance in your opinion, list six techniques or activities widely used to alter an organizations culture.
Refer to Problem E.5. Beth Zion Hospital has just been informed that only the first 10 transplants must be performed at the hospitals expense. The cost per hour of surgery is estimated to be $5,000....
Refer to the statements for Google in Appendix A. For the year ended December 31, 2015, what was its debt-to-equity ratio? What does this ratio tell us? Data From Statement Google In Appendix A...
On January 1, 2017, Geffrey Corporation had the following stockholders equity accounts. Common Stock ($20 par value, 60,000 shares issued and outstanding).. $1,200,000 Paid-in Capital in Excess of...
Need a fix, and explain code. Why can't b.size access Small? If size = 1 is public shouldn't it be able to be accesssed from outside the class? public class Big { private Small s = new Small();...
Consider a contingent claim whose payoff X T is known at time T but it is payable at a later time T , T >T. Show that the time-t value of the contingent claim is given by
The price function of a European call option under stochastic interest rates can also be solved using the partial differential equation approach. Let the asset value process S t and the short rate...
Explain when to use the following research methods: focus group, in-depth interviews, observational research, ethnographic research, and diaries and crowd-sourcing.
Mia is a single taxpayer who is self-employed and will be filing a Schedule C, Profit or Loss from Business (Sole Proprietorship). Throughout 2023, she paid $325 per month for her personal health...
Gordon is conducting a risk assessment for his organization and determined the amount of damage that flooding is expected to cause to his facilities each year. What metric has Gordon identified?
How do some executives think the customer experience could be better than that reqWhat was the goal of the Hospital Price Transparency Rule when it was put into effect in 2021 by CMS?
Accounting transactions are important to a firm's operations. What activities would affect the firm's account balances?
Currently, state law requires partial manual counts to be conducted within 72 hours of polls closing after every election. What might be some advantages and disadvantages to having a second audit?...
1. How many calories of heat are required to melt 14.0 g of ice at 0C? 2. How many pounds of ice at 32F can be melted by the addition of 635 Btu of heat? 3. How many Btu of heat are required to...
You've been asked to take over leadership of a group of paralegals that once had a reputation for being a tight-knit, supportive team, but you quickly figure out that this team is in danger of...
Give an example of a recent purchase you made where the purchase wasnt just a single transaction but rather part of an ongoing relationship with the seller. Discuss what the seller has done (or could...
Discuss how the micro-macro dilemma relates to each of the following products: high-powered engines in cars, nuclear power, bank credit cards, and pesticides that improve farm production.
s problem introduces you to the computer-aided prob lem (CAP) softwarewhich is at the O n line Learning Center for this textand gets you started with the use of spreadsheet analysis for marketing...
Share two to three 'A-HA' moments that relate to the interpersonal and intrapersonal components of cultural humility.
Jeff Healy, a junior financial analyst at The Soulless Shoe Company, has been asked to calculate this year's dividend. Jeff has gathered the following data: CAPEX (spending on fixed assets): $8,000...
FB378 GS131 FB378 ACTUAL DEMAND WEEK ACTUAL FORECAST DEMAND FORECAST DEMAND GS131 ACTUAL 222 25 36 31 54 42 26 35 45 53 57 27 36 53 WEEK ACTUAL FORECAST DEMAND FORECAST 1 30 34 2345678 2 32 44 35 33...

Show that the risk neutral measure Q and the T-forward measure Q T are identical if and

Question:

F(t, T) = EQTT e-Siru du е B(t, T)

Step by Step Answer:

Lets start by establishing the connection between the riskneutral measure Q and the Tforward measure QT in the context of a stochastic short rate proc...View the full answer

Mathematical Models Of Financial Derivative

Students also viewed these Business questions