Question 1

In order to obtain forward risk neutral dynamics, must we always use zero coupons?

Accepted Answer

No, we can use any traded security. It doesn't matter if it has diﬀerent maturity as the derivative we are evaluating.

Question 2

What underlying assumption is there in any form of the Fundamental Pricing Equation?

Accepted Answer

It assumes that there is a suﬃcent number of traded securities in order to create the riskless portfolio.

Question 3

How strong is the consistency among prices for diﬀerent securities, when using diﬀerent numeraires?

Accepted Answer

Prices can become inconsistent, and lead to arbitrage opportunities.

Question 4

What requirement must a numeraire ful?ll?

Accepted Answer

It should

Question 5

What is a forward risk neutral process?

Accepted Answer

A forward risk neutral process

Question 6

What is the only restriction that the Heath-Jarrow-Morton framework impose?

Accepted Answer

Heath-Jarrow-Morton models req

Question 7

In the most literal sense, are Heath-Jarrow-Morton type of models short- term models?

Accepted Answer

No, Heath-Jarrow-Morton models

Question 8

What are the two important diﬀerences in the Fundamental Pricing For- mula, when applying the change of numeraire technique?

Accepted Answer

The two di

Question 9

What does the Feynman-Kac formula say on pricing securities?

Accepted Answer

The Feynman-Kac form

Question 10

From where does the change in numeraire technique get its name?

Accepted Answer

The answer of From where does the change in numeraire...

Question 11

What is the only input needed for pricing securities under the Heath- Jarrow-Morton framework?

Accepted Answer

We need a function for volatil

Question 12

What complications arise when computing   for interest rate derivatives such as options?

Accepted Answer

The answer of What complications arise when computing  ...

Question 13

Given forward risk neutral dynamics, what can be said of a forward price?

Accepted Answer

Under the T - forwar

Question 14

What does the change in numeraire technique accomplish?

Accepted Answer

The answer of What does the change in numeraire technique...

In order to obtain forward risk neutral dynamics, must we always use zero coupons?

What underlying assumption is there in any form of the Fundamental Pricing Equation?

How strong is the consistency among prices for diﬀerent securities, when using diﬀerent numeraires?

What requirement must a numeraire ful?ll?

What is a forward risk neutral process?

What is the only restriction that the Heath-Jarrow-Morton framework impose?

In the most literal sense, are Heath-Jarrow-Morton type of models short- term models?

What are the two important diﬀerences in the Fundamental Pricing For- mula, when applying the change of numeraire technique?

What does the Feynman-Kac formula say on pricing securities?

From where does the change in numeraire technique get its name?

What is the only input needed for pricing securities under the Heath- Jarrow-Morton framework?

What complications arise when computing for interest rate derivatives such as options?

Given forward risk neutral dynamics, what can be said of a forward price?

What does the change in numeraire technique accomplish?

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

Multi-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

Multifactor Models

Filters

Exam 21: Forward Risk Neutral Pricing and the Libor Market Model

In order to obtain forward risk neutral dynamics, must we always use zero coupons?

What underlying assumption is there in any form of the Fundamental Pricing Equation?

How strong is the consistency among prices for diﬀerent securities, when using diﬀerent numeraires?

What requirement must a numeraire ful?ll?

What is a forward risk neutral process?

What is the only restriction that the Heath-Jarrow-Morton framework impose?

In the most literal sense, are Heath-Jarrow-Morton type of models short- term models?

What are the two important diﬀerences in the Fundamental Pricing For- mula, when applying the change of numeraire technique?

What does the Feynman-Kac formula say on pricing securities?

From where does the change in numeraire technique get its name?

What is the only input needed for pricing securities under the Heath- Jarrow-Morton framework?

What complications arise when computing for interest rate derivatives such as options?

Given forward risk neutral dynamics, what can be said of a forward price?

What does the change in numeraire technique accomplish?

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

Multi-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

Multifactor Models

Filters