1) Construct an=10-period binomial model for the short-rate,ri,j. The lattice parameters are:r0,0=5%,u=1.1,d=0.9andq=1q=1/2. This is the same lattice...
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1) Construct an=10-period binomial model for the short-rate,ri,j. The lattice parameters are:r0,0=5%,u=1.1,d=0.9andq=1q=1/2. This is the same lattice that you constructed in Assignment 5.
Assume that the 1-step hazard rate in node(i,j)is given byhij=abji2wherea=0.01andb=1.01. Compute the price of a zero-coupon bond with face valueF=100and recoveryR=20%.
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