What is meant by an interest-rate model?
Answer to relevant QuestionsExplain why in practice arbitrage-free models are typically used rather than equilibrium models. Answer the below questions. (a) Explain the drift property found in an interest-rate model. (b) Explain the volatility property found in an interest-rate model. (c) Explain the mean reversion property found in an ...What is an equilibrium interest-rate model? “The option-adjusted spread measures the yield spread over the Treasury on-the-run yield curve.” Explain why you agree or disagree with this statement. The theoretical value of a noncallable bond is $103; the theoretical value of a callable bond is $101. Determine the theoretical value of the call option.
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