The polynomial models for the forward rate and yield curves are not very realistic and were...
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The polynomial models for the forward rate and yield curves are not very realistic and were used near merely for illustration. A popular model for the forward rate curve and the yield curve is due to Nelson and Siegel. Their model for the forward rate curve is r(t; 0) = 00+ (01 +0t) exp(-03t), and the forward rate implies that the yield curve is 01- exp(-03t) 03t yt (0) 00+01+ = (0 + 01/23) - 0 03 exp(-03t). A par $1200 bond has semiannual coupon payments of $30 and matures in 5 years. What is the price of this bond if the forward rate is the Nelson and Siegel curve with = 0.03, 0 = 0.02, 0 = 0.01, and 03 = 0.25? [50] The polynomial models for the forward rate and yield curves are not very realistic and were used near merely for illustration. A popular model for the forward rate curve and the yield curve is due to Nelson and Siegel. Their model for the forward rate curve is r(t; 0) = 00+ (01 +0t) exp(-03t), and the forward rate implies that the yield curve is 01- exp(-03t) 03t yt (0) 00+01+ = (0 + 01/23) - 0 03 exp(-03t). A par $1200 bond has semiannual coupon payments of $30 and matures in 5 years. What is the price of this bond if the forward rate is the Nelson and Siegel curve with = 0.03, 0 = 0.02, 0 = 0.01, and 03 = 0.25? [50]
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To calculate the price of the bond using the Nelson and Siegel model well need to use the given para... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
Posted Date:
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