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Exam 14: Interest Rate Models in Continuous Time

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Exam 1: An Introduction to Fixed Income Markets17 Questionsadd course
Exam 2: Basics of Fixed Income Securities20 Questionsadd course
Exam 3: Basics of Interest Rate Risk Management17 Questionsadd course
Exam 4: Basic Refinements in Interest Rate Risk Management18 Questionsadd course
Exam 5: Interest Rate Derivatives: Forwards and Swaps15 Questionsadd course
Exam 6: Interest Rate Derivatives: Futures and Options15 Questionsadd course
Exam 7: Inflation, Monetary Policy, and the Federal Funds Rate15 Questionsadd course
Exam 8: Basics of Residential Mortgage Backed Securities21 Questionsadd course
Exam 9: One Step Binomial Trees15 Questionsadd course
Exam 10: Multi-Step Binomial Trees15 Questionsadd course
Exam 11: Risk Neutral Trees and Derivative Pricing18 Questionsadd course
Exam 12: American Options19 Questionsadd course
Exam 13: Monte Carlo Simulations on Trees18 Questionsadd course
Exam 14: Interest Rate Models in Continuous Time15 Questionsadd course
Exam 15: No Arbitrage and the Pricing of Interest Rate Securities17 Questionsadd course
Exam 16: Dynamic Hedging and Relative Value Trades13 Questionsadd course
Exam 17: Dynamic Hedging and Relative Value Trades18 Questionsadd course
Exam 18: The Risk and Return of Interest Rate Securities11 Questionsadd course
Exam 19: No Arbitrage Models and Standard Derivatives20 Questionsadd course
Exam 20: The Market Model for Standard Derivatives19 Questionsadd course
Exam 21: Forward Risk Neutral Pricing and the Libor Market Model14 Questionsadd course
Exam 22: Multifactor Models16 Questionsadd course
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What is a differential equation?

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A differential equation establishes a relation between the rate of change of a function B(t) and its value at time t, B(t).

When dealing with a stochastic process what do we mean by a 'diffusion'?

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The diffusion term is the unpredictable component of the stochastic pro- cess, due to the lack of predictability of the Brownian motion dXt.

What is the Martingale property?

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Show that: Show that:

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Why do we need continous time models?

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What are the properties of a Brownian motion?

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Question 6

What is a Brownian motion?

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Question 7

What is Ito's Lemma?

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Question 8

What is a solution to an Ordinary Differential Equation?

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Question 9

When dealing with a stochastic process what do we mean by a 'drift'?

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Question 10

What is the main difference between the Ho-Lee and the Vasicek model?

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Question 11

According to Ito's Lemma, what are the three components of the drift term in an asset?

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Question 12

What problem do both Vasicek and Ho-Lee models share?

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Question 13

What two components do we include in a Continous Time Stochastic Pro- cess?

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Question 14

You put money into the stock market because you expect to make a profit (although you might loose money). Does your capital follow a Martingale?

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Question 15
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