BMGMT_41250_Quiz3_Sol X Homework Help - Q&A x 5/6 - 100% + 3. Options, Floorlets and Floors - 25 Points Using the following short-term discount factor tree implied by the Ho-Lee model: D D2,3 = 0.9249 B D1,2 = 0.9429 E Do,1 = 0.9800 D2,3 = 0.9569 D1,2 = 0.9755 F D2,3 = 0.9900 along with the implied evolution of the annually-compounded short-term interest rate T2,3 - 8.12% B 1,2 - 6.06% E ro,1 - 2.04% 12,3 - 4.50% - 2.51% F 72,3 - 1.01% a) (10 Points) What is the time 0 no-arbitrage price of the call option with a strike price X - 960 and maturity 2 years (To = 2) written on the 3 year zero coupon bond with face value $1000? (b) (5 Points) What is the price evolution of the floorlet 1 written on the short-term interest rate with strike rate x - 6%, maturity To - 1 and the notional amount N = 1000? (c) (5 Points) What is the price evolution of the floorlet 2 written on the short-term interest rate with strike rate x - 6%, maturity To = 2 and the notional amount N = 1000? (d) (5 Points) What is the price evolution of the floor which is the portfolio of floorlet 1 and floorlet 2 you considered above? Q Search nyhp 9