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You want to build a simple 2-date interest-rate tree to price a caplet. Each period is 6 months long. The current 6m rate is r(0,6m)=4.5%,
You want to build a simple 2-date interest-rate tree to price a caplet. Each period is 6 months long. The current 6m rate is r(0,6m)=4.5%, with semi-annual compounding, and you choose the two possible values in 6 months to be 5.0%, respectively 4.0%. Finally, the current 1-year rate is r(0,1y)=4.3% (also s.a. compounding).
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I 069 is the riskneutral probability for the outcome 50 Ex...
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
6th edition
9781305178045, 1285429648, 1305178041, 978-1285429649
