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Calibrating a binomial tree: For Q1-3, you need to calibrate a 2-period binomial tree given the following par curve. Assume a volatility of 20%. Year
Calibrating a binomial tree:
For Q1-3, you need to calibrate a 2-period binomial tree given the following par curve. Assume a volatility of 20%.
| Year | Par rate |
| 1 | 2% |
| 2 | 3% |
1. What is i0? (Be precise to 4 decimals.)
2. What is i1H? (Be precise to 4 decimals.)
3. What is i1L? (Be precise to 4 decimals.)
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