Assume that todays 6-month spot rate is 9% and in six months the new 6-month spot rate
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Question:
b) If people are not risk-neutral and the 1-year spot interest rate is 9%, what is the risk-neutral probability of an “up” move (i.e., that the forward rate will be 13%)
c) Do you think people in part (b) are risk-averse or risk-loving?
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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