Let Z(t, T) denote the price at time t T of a ZCB with maturity T.

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Let Z(t, T) denote the price at time t ≤ T of a ZCB with maturity T. Suppose the annually compounded rate during [t, T) is a constant r_A. Show that

Z(t, T) = (1+ra)^-(T-t). (1)

Using no-arbitrage argument.

Related Book For answer-question

An Introduction to the Mathematics of Financial Derivatives

ISBN: 978-0123846822

3rd edition

Authors: Ali Hirsa, Salih N. Neftci

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Posted Date: Aug 13, 2020 09:02 AM

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Let Z(t, T) denote the price at time t T of a ZCB with maturity T.

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Lets assume the face value of the ZCB to be 1 At time t enter into the ... View the full answer

An Introduction to the Mathematics of Financial Derivatives

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