Construct a n=10-period binomial model for the short-rate r i,j. The lattice parameters are: r 0,0 =5%,
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Construct a n=10-period binomial model for the short-rate r i,j. The lattice parameters are: r 0,0 =5%, u=1.1, d=0.9 and q=1−q=1/2. Assume that the 1-step hazard rate in node (i,j) is given by hij=a*bˆ(j−i/2) where a=0.01 and b=1.01. Compute the price of a zero-coupon bond with face value F=100 and recovery R=20%.
Related Book For
Probability and Statistics
ISBN: 978-0321500465
4th edition
Authors: Morris H. DeGroot, Mark J. Schervish
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