Question: Build an n = 10 binomial model for the short rate with the following parameters: r 0,0 = 5% u = 1.1 d = 0.9

Build an n = 10 binomial model for the short rate with the following parameters:

r0,0= 5%

u = 1.1

d = 0.9

q = 1 - q =

Assume that the 1-step hazard rate in node(i,j) is given by hij = abj - where:

a=0.01

b=1.01

Compute the price of a zero-coupon bond with face valueF=100and recoveryR=20%.

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