{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# W09hw6 - Math 623 F 2011 Homework 6 For full credit your...

This preview shows pages 1–2. Sign up to view the full content.

Math 623, F 2011: Homework 6. For full credit, your solutions must be clearly presented and all code included. (1) This problem is concerned with calculations on the Hull-White tree constructed in problem 3 of homework V. You should use spline interpolation and the Hull-White value for J . (a) Using the Monte-Carlo method, estimate the probability p n ( T ) that the inter- est rate r ( t ) < 0 for some t T . Do this for n = 2 , ... 6, and T = 12. Use N = 10 5 simulations in the MC implementation. (b) Plot on the same axes the graphs of p n ( T ) , 0 T 12 for n = 2 , 3 , 4. (c) Using the Monte-Carlo method, estimate the value of an interest rate cap (on a notional principle of 100) for a 12 year floating rate loan where the cap is 6% annual rate, with payment of interest 8 times per annum. Use N = 10 5 simulations in the MC implementation. (d) Estimate the value of the cap in (c) using the finite difference method. (2) This problem is also concerned with calculations on the Hull-White tree constructed in problem 3 of homework V. You should use the finite difference method (as

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern