31.28. Suppose that the (CIR) process for short-rate movement in the (traditional) risk-neutral world is dr...
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31.28. Suppose that the (CIR) process for short-rate movement in the (traditional) risk-neutral world is dr = a(b-r)dt + o √r dz and the market price of interest rate risk is λ. (a) What is the real world process for r? (b) What is the expected return and volatility for a 10-year bond in the risk-neutral world? (c) What is the expected return and volatility from a 10-year bond in the real world? 31.28. Suppose that the (CIR) process for short-rate movement in the (traditional) risk-neutral world is dr = a(b-r)dt + o √r dz and the market price of interest rate risk is λ. (a) What is the real world process for r? (b) What is the expected return and volatility for a 10-year bond in the risk-neutral world? (c) What is the expected return and volatility from a 10-year bond in the real world?
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a The volatility of r Coefficient of rdz in the process for r is sq... View the full answer
Related Book For
Fundamental Accounting Principles Volume II
ISBN: 978-1260305838
16th Canadian edition
Authors: Kermit Larson, Tilly Jensen, Heidi Dieckmann
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