Verify that the 1-year forward rate 3 years hence in Figure 25.5 is 14.0134%.
Answer to relevant QuestionsWhat are the 1-, 2-, 3-, 4-, and 5-year zero-coupon bond prices implied by the two trees? Using Monte Carlo, simulate the process dr = a(b − r)dt + σdZ, assuming that r = 6%, a = 0.2, b = 0.08, φ = 0, and σ = 0.02. Compute the prices of 1-, 2-, and 3-year zero-coupon bonds, and verify that your answers match ...Suppose the yield curve is flat at 6%. Consider a 4-year 5%-coupon bond and an 8-year 7%-coupon bond. All coupons are annual. a. What are the prices and durations of both bonds? b. Consider buying one 4-year bond and ...Suppose the 7-year zero-coupon bond has a yield of 6% and yield volatility of 10% and the 10-year zero-coupon bond has a yield of 6.5% and yield volatility of 9.5%. The correlation between the 7-year and 10-year yields is ...Using Monte Carlo, compute the 95% and 99% 1-, 10-, and 20-day tail VaRs for the position in Problem 26.2.
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