17 Bond Trading Strategies – An ExampleAMotivation This chapter shows how to use the concepts oftrading strategies, arbitrage opportunities andcomplete markets to investigate mispricings withinthe yield curve. Taken as given are the stochastic processes for a few zero-coupon bonds, the stochastic process forthe spot rate, and the assumption that there are noarbitrage opportunities. The purpose is to find the arbitrage-free prices of all the remaining zero-coupon bonds.
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