4706Assignment01

# 4706Assignment01 - Columbia University Instructor Rama CONT...

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Columbia University M.S. in Financial Engineering IEOR 4706: Foundations of Financial Engineering Instructor: Rama CONT Summer 2011. Assignment 1. Bond pricing. Assignments should be done individually. The table below shows the term structure of (annually compounded) US Trea- sury interest rates on t 0 = July 12, 2010 and t 1 = July 12, 2011. Let T = { 0.5, 2, 3, 5, 10, 30 } . R t ( T,T + 1) denotes the (annually compounded) forward rate ﬁxed at date t for the period [ t + T,t + T + 1]. D ( t,T + t ) denotes the discount factor at t for maturity T . Maturity 6 m 2 3 5 10 30 yr July 12, 2010 0.08 % 0.40 % 0.70 % 1.56% 2.97% 4.18% July 12, 2011 0.05 % 0.35% 0.58 % 1.43% 2.88% 4.17% 1. Assuming that the forward rates are piecewise constant between any two maturities in T , compute and plot the corresponding (discretely com- pounded) forward rates R t 0 ( T,T +1) and R t 1 ( T,T +1) ,T = 1 ,.. 29. What is R t 0 (0 , 1)? 2. Using the forward rate term structure computed in Q1, compute and plot
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## This note was uploaded on 03/14/2012 for the course IEOR 4706 taught by Professor Stevenkou during the Fall '10 term at Columbia.

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