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Consider a three-year Treasury bond with 10 percent coupon and $100 par value. Using the data on US Treasury zero coupon yields and volatilities during
Consider a three-year Treasury bond with 10 percent coupon and $100 par value. Using the data on US Treasury zero coupon yields and volatilities during the last two years, and the Black-Derman-Toy Model, compute the price of a two-year European call option and a two-year European put option on the Treasury bond, with a $95 strike price for both options.
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