What is the commonly used mathematical tool for describing the movement of interest rates that can incorporate the properties of an interest-rate model?
Answer to relevant QuestionsAnswer the below questions. (a) Why is the most common interest-rate model used to describe the behavior of interest rates a one-factor model? (b) What is the one-factor in a one-factor interest-rate model? What is an equilibrium interest-rate model? Answer the below questions. (a) What is meant by the option-adjusted spread? (b) What is the option-adjusted spread relative to? Does a callable bond exhibit negative or positive convexity? Suppose that the following values for a RMBS are correct for each assumption: PSA Assumption Value of Security 192 112.10 194 111.80 200 111.20 202 111.05 210 110.70 Assuming that the value of the security in the ...
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