Suppose that the price of a zero-coupon bond maturing at time T follows the process dP(t, T) = fiPP(t, T)dt + oPP(t, T)dz and the price of a derivative dependent on the bond follows the process Assume only one source of uncertainty and that / provides no income.

a. What is the forward price, F, of / for a contract maturing at time T1

b. What is the process followed by F in a world that is forward risk neutral with respect to P(t, TJ>

c. What is the process followed by F in the traditional risk-neutral world?

d. What is the process followed by / in a world that is forward risk neutral with respect to a bond maturing at time T*, where T* yt Tl Assume that op is the volatility of this bond.