Question: Let T0, T1, . . . , Tn be a sequence of times with Ti+1 = Ti + for a constant > 0. A floating-rate

Let T0, T1, . . . , Tn be a sequence of times with Ti+1 = Ti + for a constant > 0. A floating-rate bond with notional 1, start date T0 and maturity Tn pays LIBOR coupons of LTi [Ti , Ti + ] at times Ti+1 for i = 0, . . . , n 1, and notional 1 at Tn. a) Find the price at t < T0 of the floating rate bond. b) Using a replication argument, find the forward price at t for the floating rate bond (for a forward contract with maturity T), t < T < T0.

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