Interest Rate Models

Question 1

Interest Rate Models

Delta Gamma Theta Approximation

Answer 1

Question 2

Interest Rate Models

Delta Gamma Theta Approximation

Answer 2

Question 3

Interest Rate Models

Rendlemen-Bartter Model

1. Mean Reversion (Y/N?)
2. r can go negative (Y/N?)
3. Volatility varies with r (Y/N?)

Answer 3

Interest Rate Models

Rendlemen-Bartter Model

1. Mean Reversion (No)
2. r can go negative (No)
3. Volatility varies with r (Yes)

Question 4

Interest Rate Models

Vasicek Model

1. Mean Reversion (Y/N?)
2. r can go negative (Y/N?)
3. Volatility varies with r (Y/N?)

Answer 4

Interest Rate Models

Vasicek Model

1. Mean Reversion (Yes)
2. r can go negative (Yes)
3. Volatility varies with r (No)

Question 5

Interest Rate Models

Cox-Ingersoll-Ross Model

1. Mean Reversion (Y/N?)
2. r can go negative (Y/N?)
3. Volatility varies with r (Y/N?)

Answer 5

Interest Rate Models

Cox-Ingersoll-Ross Model

1. Mean Reversion (Yes)
2. r can go negative (No)
3. Volatility varies with r (Yes)

Question 6

Answer 6

Question 7

Answer 7

Question 8

Answer 8

Question 9

Black Derman Toy

Answer 9

Black Derman Toy

Question 10

Black’s Formula

Call Price =

Answer 10

Question 11

Black’s Formula

Put Price =

Answer 11

Question 12

Black’s Formula

Answer 12

Question 13

Black’s Formula

Answer 13

Question 14

Black’s Formula

Answer 14

Question 15

Black’s Formula

Answer 15

Question 16

At time T, the value of (T + 1)-year caplet =

Answer 16