Question: SECTION B Question 3 [40 points] This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) Describe

SECTION B Question 3 [40 points] This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) Describe how duration-hedging works in the context of asset-liability management. (ii) (15 points) Describe the relation between floating rate bonds, coupon bonds, and interest rate swaps. (iii) (15 points) Describe the concepts of implied volatility and forward volatility and their relation to interest rate caps

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