Using the following short-term discount factor tree implied by the Ho-Lee model: A Do, 0.9540 t...
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Using the following short-term discount factor tree implied by the Ho-Lee model: A Do, 0.9540 t = 0 B D₁,2 = 0.9294 с D1,2 = 0.9616 t = 1 1 D D23= 0.9114 E D₂a= 0.9429 F D2,3 = 0.9755 t = 2 D₁,4 = 0.8922 H D₁,4 = 0.9230 I D3,4 = 0.9549 J D₁,4 = 0.9880 t = 3 (a) Consider a 4-year zero coupon bond (T= 4) with face value $1000. What is the price evolution of this zero coupon bond? (b) Consider an American put option with maturity 2 years (T° = 2) written on a 4-year zero coupon bond (7= 4) with face value $1000. The put option can be exercised at time 1 with a strike price X₁ = 900 and at time 2 with a strike price X₂=940. What is the no-arbitrage price of this American put option at time 0? Using the following short-term discount factor tree implied by the Ho-Lee model: A Do, 0.9540 t = 0 B D₁,2 = 0.9294 с D1,2 = 0.9616 t = 1 1 D D23= 0.9114 E D₂a= 0.9429 F D2,3 = 0.9755 t = 2 D₁,4 = 0.8922 H D₁,4 = 0.9230 I D3,4 = 0.9549 J D₁,4 = 0.9880 t = 3 (a) Consider a 4-year zero coupon bond (T= 4) with face value $1000. What is the price evolution of this zero coupon bond? (b) Consider an American put option with maturity 2 years (T° = 2) written on a 4-year zero coupon bond (7= 4) with face value $1000. The put option can be exercised at time 1 with a strike price X₁ = 900 and at time 2 with a strike price X₂=940. What is the no-arbitrage price of this American put option at time 0?
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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