1
Q
Interest Rate Models
Delta Gamma Theta Approximation
A
2
Q
Interest Rate Models
Delta Gamma Theta Approximation
A
3
Q
Interest Rate Models
Rendlemen-Bartter Model
- Mean Reversion (Y/N?)
- r can go negative (Y/N?)
- Volatility varies with r (Y/N?)
A
Interest Rate Models
Rendlemen-Bartter Model
- Mean Reversion (No)
- r can go negative (No)
- Volatility varies with r (Yes)
4
Q
Interest Rate Models
Vasicek Model
- Mean Reversion (Y/N?)
- r can go negative (Y/N?)
- Volatility varies with r (Y/N?)
A
Interest Rate Models
Vasicek Model
- Mean Reversion (Yes)
- r can go negative (Yes)
- Volatility varies with r (No)
5
Q
Interest Rate Models
Cox-Ingersoll-Ross Model
- Mean Reversion (Y/N?)
- r can go negative (Y/N?)
- Volatility varies with r (Y/N?)
A
Interest Rate Models
Cox-Ingersoll-Ross Model
- Mean Reversion (Yes)
- r can go negative (No)
- Volatility varies with r (Yes)
6
Q
A
7
Q
A
8
Q
A
9
Q
Black Derman Toy
A
Black Derman Toy
10
Q
Black’s Formula
Call Price =
A
11
Q
Black’s Formula
Put Price =
A
12
Q
Black’s Formula
A
13
Q
Black’s Formula
A
14
Q
Black’s Formula
A
15
Q
Black’s Formula
A
16
Q
At time T, the value of (T + 1)-year caplet =
A
