Following the n factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics Show that the covariance of the increments of F(t,T 1 ) and F(t,T 2 ) is given by Deduce that under the one factor model, which corresponds to n 1, the changes in F(t,T 1 ) and F(t,T 2 ) are ful...

In the nfactor HJM HeathJarrowMorton framework the dynamics of the forward rate FtT are given by FtT ...

Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

Question:

Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

S F(t, T) = F(0, T) + a(u, T) du + + i=l ;(u, T) dZ(u).

Show that the covariance of the increments of F(t,T₁) and F(t,T₂) is given by

n (t, );(t, 2). i=1 Deduce that under the one-factor model, which corresponds to n = 1, the changes in F(t,T₁) and F(t,T₂) are fully correlated.

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

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
Case Study: Quick Fix Dental Practice Technology requirements Application must be built using Visual Studio 2019 or Visual Studio 2017, professional or enterprise. The community edition is not...
Identify the process evaluation article that you chose and explain why you selected this example. Describe the purpose of the evaluation, the informants, the questions asked, and the results of the...
What are some signs of dental disease?
List three firms you are familiar with and give a distinctive competence for each firm.
What are the expected number of yearly breakdowns for the power generator at Orlando Utilities that has exhibited the following data over the past 20years? Number of breakdowns Number of years in...
Identify the most appropriate approach and then design. Provide a rationale as to why this approach and design would be most appropriate. Develop a hypothetical research scenario that would...
Italian Construction Company purchased a new crane for $360,500 at the beginning of year 1. The crane has an estimated residual value of $35,000 and an estimated useful life of six years. The crane...
choose the closest answer find the annual total cost of inventory. if the company using their present lot size do not use the EOQ be sure to use the present lot size . unit cost$5, ordering cost...
Calculate the energy released by a nucleus of uranium-235 if it splits into a barium-141 nucleus and a krypton-92 nucleus according to the equation above. Strategy Einsteins equation (E = mc 2 )...
Following the n-factor HJM framework, show that the dynamics of r(t) under the risk neutral measure [see (7.4.8b)] can be expressed as where F(t,T) is defined in (7.4.7). Can you provide a financial...
Find the volume of each solid in Problems 916. 12 in. 12 in. 12 in.
Think about Haydns various roles as a composer during his lifetime. How did his ?economic circumstances/job responsibilities affect his compositional output? Consider Haydns time in Esterhza with...
Briefly describe the origins of jazz in Weimar Germany. Do modern scholars ?consider German jazz of the 1920s to have been based on legitimate American jazz? Be ?able to briefly explain their...
What made Arcangelo Corelli so important in the aspirational social scene of late ?seventeenth-century Rome? What might Corellis patrons have stood to gain from the act of patronage? What unique...
Budgeting is too often looked upon from a purely mechanistic viewpoint. The human factors in budgeting are more important than the accounting techniques. The success of a budgetary system depends...
Who were the intended consumers of Duke Ellingtons Jungle Music at the Cotton ?Club in Harlem? How might this connect with what we have described as imagined ?ideas of Africa? Why did Darius Milhaud...
(a) At what temperature does water have its highest density? (b) How does water differ from other liquids in this regard? (c) What is the impact of this unique characteristic of water?
Complete the equations for the following equilibria and calculate Keq where the Keq expression includes [HO]. Be sure to enter Keq in proper scientific notation. (a) ammonia (acting as a base) reacts...
Jennifer and Jamie are starting a business and have asked you for advice about whether they should form a partnership, a corporation, or some other type of entity. Prepare a list of questions you...
In the current year, Jeanette, an individual in the 25% marginal tax bracket, recognized a $20,000 long-term capital gain. Also in the current year, Parrot Corporation, a C corporation in the 25%...
John (a sole proprietor) and Eagle Corporation (a C corporation) each recognize a long-term capital gain of $10,000 and a short-term capital loss of $18,000 on the sale of capital assets. Neither...
A block of mass m1=19.5 kg slides along a horizontal surface (with friction, uk=0.31) a distance d = 2.45 m before striking a second block of mass m2=6.25 kg. The first block has an initial velocity...
A polo ball is hit with a mallet off the edge of a cliff. Its x- and y-coordinates as functions of time are given by x = 18.2t and y = 3.60t-4.90t2, where x and y are in meters and t is in seconds....
Jeff volunteers his time by working at an animal shelter. Each year he works for a total of 240 hours. So far this year, he has worked 97 hours. Which equation will solve for how many more hours (h)...

Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

Question:

S F(t, T) = F(0, T) + a(u, T) du + + ΣΙ i=l σ;(u, T) dZ¡(u).

Step by Step Answer:

In the nfactor HJM HeathJarrowMorton framework the dynamics of the forward rate FtT are given by FtT ...View the full answer

Mathematical Models Of Financial Derivative

Students also viewed these Business questions