you decide to model interest rates R(n) using a log-normal process with parameters R(0) = 2%, =
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you decide to model interest rates R(n) using a log-normal process with parameters R(0) = 2%, = 0.2 and = 0.2 (here R(n) is the effective interest rate for a deposit between time n and time n 1). (a) Give one advantage of using a log-normal process as a model for interest rates Suppose that you deposit a bank account at time = 0. Calculate the probability that the accumulated bank balance has more than doubled by time 4. You may use the value of the standard normal e.d.f. Ф(1.695) = 0,955.
Related Book For
Finite Mathematics and Its Applications
ISBN: 978-0134768632
12th edition
Authors: Larry J. Goldstein, David I. Schneider, Martha J. Siegel, Steven Hair
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