Exercise 27.4.12 Assume a flat prevailing spot rate curve and continuous compounding. Prove that for an option-free

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Exercise 27.4.12 Assume a flat prevailing spot rate curve and continuous compounding.

Prove that for an option-free nonbenchmark bond, any calibrated interest rate tree will compute a spread that equals the yield spread. (The yield spread is the difference between the yields to maturity of benchmark and nonbenchmark bonds.

The spread is the incremental return over the short rate on the tree in the sense of Subsection 23.3.1.)

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Financial Engineering And Computation Principles Mathematics Algorithms

ISBN: 9780521781718

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Authors: Yuh-Dauh Lyuu

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Question Posted: Oct 28, 2024 05:02 AM

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Exercise 27.4.12 Assume a flat prevailing spot rate curve and continuous compounding. Prove that for an option-free

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Financial Engineering And Computation Principles Mathematics Algorithms

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