Consider the two-factor Gaussian model, which is a combination of the HoLee and Vasicek models. Let the

Question:

Consider the two-factor Gaussian model, which is a combination of the Ho–Lee and Vasicek models. Let the volatility structure in the HJM framework be given by

Show that the bond price B(t, T) is given by (Heath, Jarrow and Morton, 1992).

B(t, T) = where B(0, T) B(0, t) X(t): exp = =S M(t, T) = M(t, T) = -M(t, T) - M(t, T) 0 (T 1)Z(1) 7/[1

Also, show that the yield to maturity R(t, T) is normally distributed with mean μR(t, T) and variance σR(t, T)²:

UR(t,T) = In B(0,T) B(0,1) T-t OR(t, T) = oft + + M (t, T) T-t M(t, T) T-t +P- 1 - e-2kt). 0 [1-e 2k3 +

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

A go-cart moves along a circular track of radius such that its speed for a short period of time, Determine the magnitude of its acceleration when t = t 2 . How far has it traveled in t = t 2 ? Use...
Determine the amount of cash received from customers for each of the six independent situations below. All dollars are inmillions. Bad Debt Cash Received from Customers Situation Sales Accounts...
Show that the difference quotient for f(x) = sin(2x) is cos(2x) sin(2) sin(2x)[-cos(2h)] h - Plot Y = cos(2x) cos(2x) sin(2h)] [ sin(2x) cos(2h)] h for a. h = 1 b. h = 0.1 c. h = 0.01 What function...
Write Python code that prompts the user to enter his or her age and assigns the users input to an integer variable named age.
Describe the business culture in Mexico.
This problem will introduce the learner into a technique called Analysis of Variance. For this course we will only conduct a simple One-Way ANOVA and touch briefly on the important elements of this...
Assume the same information as in question 4. Also assume that beginning work in process had $$6,000$ in conversion cost and that $$84,000$ in conversion is added during this period. What is the...
Extended Warranties Dos Passos Company sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform...
Compute the Internet checksum value for these two 16-bit words: 01101111 11110001 10101001 11000111
Using the analytic representation of F(t, T) in (7.4.7), show that the discount bond price can be expressed as
Let the exchange rate process X(t), T -maturity domestic and foreign bond processes B d (t, T ) and B f (t, T ) be the same as those defined in Problem 8.9. Find the time-t value of the LIBOR spread...
Michael's Tennis reported the following selected accounts in its June 30, 2013, annual financial statements. Prepare the company's closing entries. Include explanations. Prepare a T-account for...
The Oklahoma State Board of Virtual Charter Schools, which considers applications for charter schools operating virtually in the state, denied the application in a 5-0 vote. Board President Robert...
Review the narrative write- up resulting from interviews with the company's Purchasing Agent, Director of Accounting Payable and the Controller. Identify weaknesses in internal controls, provide a...
This case has all the ingredients for generating considerable student interest and provoking a lively, interesting class discussion with divergent opinions among class members. The case presents...
Xerox's internal benchmarking strategy has paid off by examining the operations of its various country divisions. For example, Xerox Europe, a $6 billion subsidiary of Xerox Corp., formed teams to...
In our everyday life, and with the domination of social media in our life's aspects, publicity become almost everything for most individuals and businesses , Do you agree.
The diameter of a hole drilled through brass at 21C measures 6.500 cm. Find the diameter and area of the hole when the brass is heated to 175C.
A fast-food restaurant averages 150 customers per hour. The average processing time per customer is 90 seconds. a. Determine how many cash registers the restaurant should have if it wishes to...
In your own words, explain how a marketing manager might use a competitor analysis to avoid situations that involve head-on competition.
The owner of a small hardware storethe only one in a medium-sized town in the mountainshas just learned that a large home improvement chain plans to open a new store nearby. How difficult will it be...
Discuss the probable impact on your hometown if a major breakthrough in air transportation allowed foreign producers to ship into any U.S. market for about the same transportation cost that domestic...
income statement for the month of June, what would be his contribution margin?
What are the main points of the article? ( b ) How does this article relate to our course material? Cite specific examples and concepts. ( c ) How can you use the information in the article in your...
What is the main difference between the cash and accrual bases of accounting?

Consider the two-factor Gaussian model, which is a combination of the HoLee and Vasicek models. Let the

Question:

o(t, T) = 0₂ and o(t, T) = 02 0₂e-k(T-1)

Step by Step Answer:

The expression for the bond price BtT and the yield to maturity RtT provided in the question a...View the full answer

Mathematical Models Of Financial Derivative

Students also viewed these Business questions