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2. Consider a Black-Derman-Toy model with the following information: Interest Rate Time 0 1 1 2 2 2 2 3 3 3 ro ri(H) ri(T)
2. Consider a Black-Derman-Toy model with the following information: Interest Rate Time 0 1 1 2 2 2 2 3 3 3 ro ri(H) ri(T) r2(H, H) r2(H,T) r2(T, H) r2(T,T) r3(H, H, H) r3(H, H, T) r3(H,T,T) r3(T,T,T) Value 0.09 0.126 0.093 0.172 0.135 0.135 ? 0.168 ? 0.110 ? 3 Given this information, please (a) fill in the missing entries in the Black-Derman-Toy table (10 pts), and (b) compute the values B1(H), B1(T) at time 1 of a zero-coupon bond that matures at T = 3 with face/redemption value F = 100. (30 pts). 2. Consider a Black-Derman-Toy model with the following information: Interest Rate Time 0 1 1 2 2 2 2 3 3 3 ro ri(H) ri(T) r2(H, H) r2(H,T) r2(T, H) r2(T,T) r3(H, H, H) r3(H, H, T) r3(H,T,T) r3(T,T,T) Value 0.09 0.126 0.093 0.172 0.135 0.135 ? 0.168 ? 0.110 ? 3 Given this information, please (a) fill in the missing entries in the Black-Derman-Toy table (10 pts), and (b) compute the values B1(H), B1(T) at time 1 of a zero-coupon bond that matures at T = 3 with face/redemption value F = 100. (30 pts)
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