Question: Exercise 25.5 A consol bond is a bond which forever pays a constant con- tinuous coupon. We normalize the coupon to unity, so over

Exercise 25.5 A consol bond is a bond which forever pays a

Exercise 25.5 A consol bond is a bond which forever pays a constant con- tinuous coupon. We normalize the coupon to unity, so over every interval with lenght dt the consol pays 1.dt. No face value is ever paid. The price C(t), at time t, of the consol is the value of this infinite stream of income, and it is obviously (why?) given by C(t) = [,* p(t, s)ds. Tomas. Arbitrage Theory in Continuous Time, Oxford University Press USA - OSO, 2009. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/columbia/detail.action?docID=472206. ed from columbia on 2020-11-14 10:54:41.

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