Suppose that a = 0.05 and = 0.015 in the Hull-White model with the initial term
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Suppose that a = 0.05 and σ = 0.015 in the Hull-White model with the initial term structure being flat at 6% with semiannual compounding. Calculate the price of a 2.1-year European call option on a bond that will mature in three years. Suppose that the bond pays a coupon of 5% per annum semiannually. The principal of the bond is 100 and the strike price of the option is 99. The strike price is the cash price (not the quoted price) that will be paid for the bond.
Strike PriceIn finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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This problem is similar to Problem 325 The difference is that the HullWhite model which fits an init...View the full answer
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