Question
Suppose the 1-year spot rate is 0.8%, and that a 2-year 1.5% annual coupon, a 3-year 2% annual coupon bonds are trading at par ($100).
Suppose the 1-year spot rate is 0.8%, and that a 2-year 1.5% annual coupon, a 3-year 2% annual coupon bonds are trading at par ($100).
Calibrate a 2-year binomial interest rate model, assuming that interest rate volatility is 10%. What is the lowest rate at t=2?
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Contemporary Issues In Quantitative Finance
Authors: Ahmet Can Inci
1st Edition
1032101121, 978-1032101125
