Debt Instruments and Markets
Professor Carpenter
Solutions to Problem Set 1: Coupon Bonds, Zeroes, and Zero Rates
Please do all calculations in Excel and put your answers in the blue cells.
Please do
Advanced Fixed Income Analytics
Backus & Zin April 28, 1999
Lecture 6
Fixed Income Models: Assessment and New Directions
1. Uses of models 2. Assessment criteria 3. Assessment 4. Open questions and ne
Advanced Fixed Income Analytics
Backus & Zin April 1, 1999
Lecture 2
Options 1: The Term Structure of Volatility
1. Approaches to valuation review and extension 2. The Black-Scholes formula history an
Advanced Fixed Income Analytics Vasicek: The Fixed Income Benchmark
1. Prospectus 2. Models and their uses 3. Spot rates and their properties
Backus & Zin April 1, 1999
Lecture 1
4. Fundamental theore
Advanced Fixed Income Analytics Binomial Models 1
1. Flow chart 2. Rate trees 3. Contingent claims and state prices 4. Valuation 1: one period at a time 5. Valuation 2: all at once 6. Models: Ho and L
Backus & Zin
Technical Note on the Black-Scholes Formula
March 13, 1999; revised April 12, 1999 The Black-Scholes formula has been derived many ways. One we nd appealing was suggested by Rubinstein 19
Advanced Fixed Income Analytics American Options
1. Introduction Motivation 2. Problem with Black-Scholes 3. Put-Call Non-Parity 4. Payo and Price of an American Option 5. Valuation with Trees 6. Exam
Backus, Wu, & Zin
Technical Note on Hull and White
February 6, 1999; revised April 13, 1999 Hull and White have translated the Vasicek model and others into a discrete-time, discretestate setting that
Forward Premium/Discount (2 Points)
Let us look at the exchange rate between two currencies the Sophomore IamSternie currency and the
Junior Jackpot currency. What is the Annualized Forward Premium or
Debt Instruments and Markets
Professor Carpenter
Fixed Income
Financial Engineering
Concepts and Buzzwords
From
short rates to bond
Nonnegativity
prices
Proportional
The
simple Black, Derman,
Toy mode
Debt Instruments and Markets
Professor Carpenter
Immunization
Veronesi, Chapter 3
Tuckman, Chapter 7
Asset-Liability Management
Suppose you have liabilities or obligations consisting of a
stream of fi
Short Answers (3 points each)
1.
What are the downsides of currency controls (e.g. exchange controls)? Briefly list two of them.
2.
How did GE save money by bringing production of the GeoSpring back t
Short Answers (3 points each)
1. According to Bergsten (New Imbalances Will Threaten the Global Recovery), who has become the
consumer/ borrower of last resort and why?
2. According to the article by
Debt Instruments and Markets
Professor Carpenter
Dynamic Trading
Strategies
Concepts and Buzzwords
Multi-Period Bond
Model
Replication and Pricing
Using Dynamic Trading
Strategies
Pricing Using RiskNe
Debt Instruments and Markets
Professor Carpenter
Coupon Bonds and Zeroes
Concepts and Buzzwords
Coupon bonds
Zero-coupon bonds
Bond replication
No-arbitrage price
relationships
Zero rates
Zeroes
Short Answers (3 Points each)
1. When trying to determine whether a firm should export a good in its home country or use FDI in a new market,
there were four important location factors cited in the bo
Debt Instruments and Markets
Professor Carpenter
Mortgage Pools, Pass-Throughs,
and CMOs
Concepts and Buzzwords
Fixed-Rate Mortgages
Prepayment Risks
Valuation of Mortgage
Pools (Pass-Throughs)
CMOs
I