Questions 1-6 should be answered by building ann = n=10-period binomial model for the short-rate,r_{i,j}. The lattice parameters are:r_{0,0} = 5%,u = 1.1,d = 0.9andq
Questions 1-6should be answered by building ann =
n=10-period binomial model for the short-rate,r_{i,j}. The lattice parameters are:r_{0,0} = 5%,u = 1.1,d = 0.9andq =1-q = 1/2
Quiz Instructions: Term Structure Models | Questions 1-6 should be answered by building an n =10-period binomial model for the short-rate, rij. The lattice parameters are: ro,0 = 5%, u = 1.1, d = 0.9 and q = 1 - q = 1/2.1. Quiz instructions Compute the price of a zero-coupon bond (ZCB) that matures at time t = 10 and that has face value 100. Submission Guideline: Give your answer rounded to 2 decimal places. For example, if you compute the answer to he 73.236795, submit 73.24. _Quiz instructions Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at time-t = 4. Submission Guideline: Give your answer rounded to 2 decimal places. For example, if you compute the answer to he 73.2367%, submit 73.24. ! Incorrect Quiz instructions Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration oft = 4. Submission Guideline: Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.236795, submit 73.24. 4. Quiz instructions Compute the price of an American call option on the same ZCB of the previous three questions. The option has expiration t = 6 and strike = 80. Submission Guideline: Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24. Incorrect 5. Quiz instructions Compute the initial value of a forward-starting swap that begins at t = 1, with maturity t = 10 and a fixed rate of 4.5%. (The first payment then takes place at t = 2 and the final payment takes place at t = 11 as we are assuming, as usual, that payments take place in arrears.) You should assume a swap notional of 1 million and assume that you receive floating and pay fixed.) Submission Guideline: Give your answer rounded to the nearest integer. For example, if you compute the answer to be -220,432.23, submit -220432.9% Compute the initial price of a swaption that matures at time t = 5 and has a strike of 0. The underlying swap is the same swap as described in the previous question with a notional of 1 million. To be clear, you should assume that if the swaption is exercised at t = 5 then the owner of the swaption will receive all cash-flows from the underlying swap from times t = 6 to t = 11 inclusive. (The swaption strike of 0 should also not be confused with the xed rate of 4.5% on the underlying swap.) Submission Guideline: Give your answer rounded to the nearest integer. For example, if you compute the answer to be 420,432.23, submit -220432
