This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i)...
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This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) The par rate or for a given maturity T is the coupon rate that makes a T-year coupon bond sell for par. Describe the relation between swap rates, zero-coupon bonds and par rates. (ii) (15 points) Explain how the asset-liability management of instruments with neg- ative convexity may lead to an increased volatility of interest rates. (iii) (15 points) Provide two examples of mortgage-backed securities. Discuss their pricing as well as their risk profile, i.e. how the value of the security varies when interest rates increase (or decrease). This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) The par rate or for a given maturity T is the coupon rate that makes a T-year coupon bond sell for par. Describe the relation between swap rates, zero-coupon bonds and par rates. (ii) (15 points) Explain how the asset-liability management of instruments with neg- ative convexity may lead to an increased volatility of interest rates. (iii) (15 points) Provide two examples of mortgage-backed securities. Discuss their pricing as well as their risk profile, i.e. how the value of the security varies when interest rates increase (or decrease).
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i The par rate for a given maturity T is the coupon rate that makes a Tyear coupon bond sell for par Swap rates zerocoupon bonds and par rates are all ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
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