Question
A cash flow with present value (PV) $2m at 265 days is to be mapped to interest rates with maturities 6 months and 12 months.
A cash flow with present value (PV) $2m at 265 days is to be mapped to interest rates with maturities 6 months and 12 months. These interest rates have volatilities 75bps and 90bps respectively, and correlation 0.75. The vertex at 265 days has volatility 85bps The mapping must preserve both PV and volatility. How much, in PV terms, is mapped to each vertex?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Structured Finance Leveraged Buyouts Project Finance Asset Finance And Securitization
Authors: Charles-Henri Larreur
1st Edition
1119371104, 978-1119371106
