Construct a n =10-period binomial model for the short-rate, ri , j . The lattice parameters are:
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Question:
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=1-q=1/2. Assume that the 1-step hazard rate in node(i,j)is given byhij=abj2iwherea=0.01andb=1.01. Compute the price of a zero-coupon bond with face valueF =F=100and recoveryR=20%.
Submission Guideline:Give your answer rounded to two decimal places. For example, if you compute the answer to be 73.2367, submit 73.24.
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