Question 1

Compute the spot rate duration for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

Spot rate duration is -6.7695.

Question 2

You are given the following interest rate tree. Use it when required in the
exercises.  
-Using risk neutral pricing obtain the value for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

The price is 0.1709.

Question 3

What is one major drawback from using empirical estimates to ﬁt the "true" interest rate tree?

Accepted Answer

One major drawback is that it may generate negative nominal interest rates.

Question 4

Compute the spot rate duration for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

Spot rate

Question 5

You are given the following interest rate tree. Use it when required in the
exercises.  
-Using risk neutral pricing obtain the value for a 1.5 year zero coupon bond. Assume that p? = 0.7038 is constant over time.

Accepted Answer

The price

Question 6

How realistic is it to speak about negative interest rate in nominal terms?

Accepted Answer

This is economically unreasona

Question 7

You are given the following interest rate tree. Use it when required in the
exercises.  
-Using risk neutral pricing obtain the value for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

The price

Question 8

In order to compute the spot rate duration do you use risk neutral prob- abilities or risk natural probabilities?

Accepted Answer

You use risk neutral probabili

Question 9

Which of the following prices should be higher: a call option, a put option or a straddle. All of them have the same maturity, underlying security and strike price. Explain.

Accepted Answer

The most expensive o

Question 10

What is the diﬀerence between risk neutral probability and risk natural probability?

Accepted Answer

Risk natural probability explains the st

Question 11

Why do we say that the dynamic replication strategy is self-ﬁnancing?

Accepted Answer

Because with the capital gain

Question 12

Using risk neutral pricing obtain the value for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

The price

Question 13

When talking about options, what is a straddle?

Accepted Answer

A straddle is a comb

Question 14

Compute the spot rate duration for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

Accepted Answer

Spot rate

Question 15

How realistic is it to speak about negative interest rate in real terms?

Accepted Answer

Real negative interst rate can

Compute the spot rate duration for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

What is one major drawback from using empirical estimates to ﬁt the "true" interest rate tree?

Compute the spot rate duration for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a 1.5 year zero coupon bond. Assume that p? = 0.7038 is constant over time.

How realistic is it to speak about negative interest rate in nominal terms?

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

In order to compute the spot rate duration do you use risk neutral prob- abilities or risk natural probabilities?

Which of the following prices should be higher: a call option, a put option or a straddle. All of them have the same maturity, underlying security and strike price. Explain.

What is the diﬀerence between risk neutral probability and risk natural probability?

Why do we say that the dynamic replication strategy is self-ﬁnancing?

Using risk neutral pricing obtain the value for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

When talking about options, what is a straddle?

Compute the spot rate duration for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

How realistic is it to speak about negative interest rate in real terms?

An Introduction to Fixed Income Markets

Basics of Fixed Income Securities

Basics of Interest Rate Risk Management

Basic Refinements in Interest Rate Risk Management

Interest Rate Derivatives: Forwards and Swaps

Interest Rate Derivatives: Futures and Options

Inflation, Monetary Policy, and the Federal Funds Rate

Basics of Residential Mortgage Backed Securities

One Step Binomial Trees

Risk Neutral Trees and Derivative Pricing

American Options

Monte Carlo Simulations on Trees

Interest Rate Models in Continuous Time

No Arbitrage and the Pricing of Interest Rate Securities

Dynamic Hedging and Relative Value Trades

Dynamic Hedging and Relative Value Trades

The Risk and Return of Interest Rate Securities

No Arbitrage Models and Standard Derivatives

The Market Model for Standard Derivatives

Forward Risk Neutral Pricing and the Libor Market Model

Multifactor Models

Filters

Exam 10: Multi-Step Binomial Trees

Compute the spot rate duration for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

What is one major drawback from using empirical estimates to ﬁt the "true" interest rate tree?

Compute the spot rate duration for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a 1.5 year zero coupon bond. Assume that p? = 0.7038 is constant over time.

How realistic is it to speak about negative interest rate in nominal terms?

You are given the following interest rate tree. Use it when required in the exercises. -Using risk neutral pricing obtain the value for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

In order to compute the spot rate duration do you use risk neutral prob- abilities or risk natural probabilities?

Which of the following prices should be higher: a call option, a put option or a straddle. All of them have the same maturity, underlying security and strike price. Explain.

What is the diﬀerence between risk neutral probability and risk natural probability?

Why do we say that the dynamic replication strategy is self-ﬁnancing?

Using risk neutral pricing obtain the value for a straddle on a 1.5 year zero coupon bond with K = 98.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

When talking about options, what is a straddle?

Compute the spot rate duration for a call option on a 1.5 year zero coupon bond with K = 99.00, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

How realistic is it to speak about negative interest rate in real terms?

An Introduction to Fixed Income Markets

Basics of Fixed Income Securities

Basics of Interest Rate Risk Management

Basic Refinements in Interest Rate Risk Management

Interest Rate Derivatives: Forwards and Swaps

Interest Rate Derivatives: Futures and Options

Inflation, Monetary Policy, and the Federal Funds Rate

Basics of Residential Mortgage Backed Securities

One Step Binomial Trees

Risk Neutral Trees and Derivative Pricing

American Options

Monte Carlo Simulations on Trees

Interest Rate Models in Continuous Time

No Arbitrage and the Pricing of Interest Rate Securities

Dynamic Hedging and Relative Value Trades

Dynamic Hedging and Relative Value Trades

The Risk and Return of Interest Rate Securities

No Arbitrage Models and Standard Derivatives

The Market Model for Standard Derivatives

Forward Risk Neutral Pricing and the Libor Market Model

Multifactor Models

Filters