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Unformatted text preview: 550.445 Modeling and Analysis of Securities and Financial Markets II, Spring 2010 TA Section 01 Peter C.L. Lin peter.lin@jhu.edu 1 What will you learn in 445? We will focus on two main topics: (1) Interest Rate Models, and (2) Credit Derivatives. The math in this course is more di ffi cult than 444, especially in discussing about interest rate models. I will go through some proofs in details so you can better understand the materials. 2 Homework Review 27.15 Suppose that S is the security price and is the expected return from the security. Then dS S = dt + 1 dz 1 + 2 dz 2 where dz 1 and dz 2 are Wiener processes, 1 dz 1 is the component of the risk in the return attributable to the price of copper and 2 dz 2 is the component of the risk in the return attributable to the yendollar exchange rate. If the price of copper is held fixed, dz 1 = 0 and: dS S = dt + 2 dz 2 . Hence 2 is 8% per annum or 0 . 08. If the yendollar exchange rate is held fixed, dz 2 = 0 and: dS S = dt + 1 dz 1 . Hence 1 is 12% per annum or 0 . 12....
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 Spring '10
 Jooe

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