The Science of Term Structure Models (FRM Part 2 2023 - Book 1 - Chapter 11)
Vložit
- čas přidán 20. 07. 2024
- For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: analystprep.com/shop/unlimite...
AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams
After completing this reading you should be able to:
- Calculate the expected discounted value of a zero-coupon security using a binomial tree.
- Construct and apply an arbitrage argument to price a call option on a zero-coupon security using replicating portfolios.
- Define risk-neutral pricing and apply it to option pricing.
- Distinguish between true and risk-neutral probabilities, and apply this difference to interest rate drift.
- Explain how the principles of arbitrage pricing of derivatives on fixed income securities can be extended over multiple periods.
- Define option-adjusted spread (OAS) and apply it to security pricing.
- Describe the rationale behind the use of recombining trees in option pricing.
- Calculate the value of a constant maturity Treasury swap, given an interest rate tree and the risk-neutral probabilities.
- Evaluate the advantages and disadvantages of reducing the size of the time steps on the pricing of derivatives on fixed-income securities.
- Evaluate the appropriateness of the Black-Scholes-Merton model when valuing derivatives on fixed income securities.
This is a great lecture! Thank you professor.
Very well explained with simple examples. Thanks Prof. Forjan.
You are welcome!
Well dissected. Thanks a million!
Glad it was helpful! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a review here: trustpilot.com/review/analystprep.com
Just one question, how did the 10 basis points come in the OAS?
Don't know why but this did not cover Callable and Putable bonds.