Question: Today is November 3, 2008. Table 22.3 provides the caps and swap rates quotes on this date. Fit the two-factor Vasicek model to these data.

Today is November 3, 2008. Table 22.3 provides the caps and swap rates quotes on this date. Fit the two-factor Vasicek model to these data. Discuss the performance of the model in fitting both the term structure of interest rates and cap prices.

Maturity Swap Rates Swaption Vols Volatilities 3M 6M 60.6 46.5 IY Caps 60.59/61.59 52.26/53.26 Floors 2.412452 67.8 1 Y 2 Y 3 Y 4 Y 5 Y 7 Y 10 Y 60.59/61.59 52.26/53.26 37.7 42.32/43.3242.3243.32 3.507/547 7 4.5 3.3 35.99/36.99 35.9936.99 3.24 32.24/33.24 4.171/197 1.3 63 34 27.82/28.82 27.82/28.82 2.619/633 .120160 52.8 3.808/822 59.7 52.8 52.8 49.3 46.6 40.3 341 32.24/33

Step by Step Solution

★★★★★

3.47 Rating (163 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Figure and Figure present the yield curve and the discount prices under both the Vasicek and th... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

939-B-C-F-R-A-M (1388).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Today is December 12, 2008 and TIPS prices are in Table 7.8. (a) Use the extended Nelson Siegel model in Equation 7.28 to calculate the real discount curve and real yield curve. (b) Your estimates...

The following structure of interest rates is given: Term of Loan Interest Rate 1 year....... 3% 2 years....... 4% 5 years....... 6% 10 years....... 8% Your firm needs $2,000 to finance its assets....

The canonical two-factor Vasicek model for the short rate, r(t), assumes dY1(t) = 1Y1(t)dt + dW1(t) (20.56) where W1(t) and W2(t) are Q-independent Brownian motions with case account takes as...

Today is November 3, 2008, and the 3-month LIBOR and (interpolated) swap rates are as in Table 19.4. (a) Obtain the LIBOR yield curve from the swap rates.7 (b) Let be the historical volatility of...

Let today be November 3, 2008. (a) Use the LIBOR rate and the swap data on November 3, 2008 in Table 11.26 and fit the LIBOR curve. (b) From the LIBOR discount curve, fit the Ho-Lee model of the...

Hi, I am doing a project for derivatives class and I have some questions about a regression and Monte Carlo simulation that I need to come up with. So the goal is to hedge against CDS instruments by...

Please provide detailed explanations for introduction, background, methods, analyis and results and recommendations and conclusions. VF Brands: Global Supply Chain Strategy It was August 2009. Chris...

What is the present value of the projected merger benefits in Table A as of December 31, 2015? Are the projections reasonable? How does the present value of the pre-merger operational improvements...

3 COLLEGE ALGEBRA - TRIGONOMETRY Business and Finance (MAT115) This course will start with a review of basic algebra (factoring, solving linear equations, and equalities, etc.) and proceed to a study...

For the exclusive use of X. Ye, 2017. ARVIND KRISHNAMURTHY AND TAFT FOSTER KEL782 Quantitative Easing in the Great Recession On October 29, 2008, the Federal Open Market Committee (FOMC) concluded...

Christine needs 160 tiles for a room. Tiles are sold in boxes. There are 12 tiles in each box. (b) Work out the least number of boxes of tiles that Christine needs.

Find the number of primes less than 200 using the principle of inclusion-exclusion.

Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.

Explain why the prices of essential services such as health care and education are increasing faster than the prices of manufactured goods. How can the government deal with this market failure?

Purdue Co. (based in the United States) exports cable wire to Australian manufacturers. It invoices its product in U.S. dollars and will not change its price over the next year. There is intense...

Assume that interest rate parity exists and it will continue to exist in the future. Assume that interest rates of the United States and the United Kingdom vary substantially in many periods. You...

1. Considering both Blades current practices and future plans, how can it benefit from forecasting the baht-dollar exchange rate? 2. Which forecasting technique (i.e., technical, fundamental, or...

Where do institutional investor (such as: pension funds and mutual funds) mostly buy their stocks? Which of the following financial assets is least likely to have an active secondary market? Which...

You must evaluate the purchase of a proposed spectrometer for the R & D department . The purchase price of the spectrometer including modifications is $ 2 6 0 , 0 0 0 , and the equipment will be...

Read the article: Grobart, J. (2020). Preparing for whistleblower complaintsLinks to an external site.. Select one of the questions below to discuss: What do you see as the greatest future...