Question: Why is it useful to have stochastic models for interest rates and the bond prices? a . Yield curves can be forecasted / estimated with
Why is it useful to have stochastic models for interest rates and the bond prices?
a Yield curves can be forecasted estimated with only using the short term spot rates.
b Using dynamic models one would be able to use probabilistic insights for risk management.
c These models could be used for forecasting bond prices.
d Some derivative products eg options are priced along with these models.
e All of the above is true.
f There are no real bonds on the market, which are traded continuously, meaning that these models only have theoretical significance.
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