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    1. The document contains the solutions to assignment questions on bond tree modeling. It includes trees showing interest rates, discount factors, and cash flows over multiple periods. 2. For question 1, the document shows trees with interest rates, discount factors, and cash flows calculated for a 1 period model both with and without a rate cap. 3. For question 2, the document displays a term structure of interest rates over 5 periods. It then constructs zero coupon bond trees and calculates yields, yield to maturities, and volatility for 2 year bonds.

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    BDT Assignmnet 2019 Questions

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    1. The document contains the solutions to assignment questions on bond tree modeling. It includes trees showing interest rates, discount factors, and cash flows over multiple periods. 2. For question 1, the document shows trees with interest rates, discount factors, and cash flows calculated for a 1 period model both with and without a rate cap. 3. For question 2, the document displays a term structure of interest rates over 5 periods. It then constructs zero coupon bond trees and calculates yields, yield to maturities, and volatility for 2 year bonds.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    7 views4 pages

    BDT Problems Assignment

    Uploaded by

    xc123544
    1. The document contains the solutions to assignment questions on bond tree modeling. It includes trees showing interest rates, discount factors, and cash flows over multiple periods. 2. For question 1, the document shows trees with interest rates, discount factors, and cash flows calculated for a 1 period model both with and without a rate cap. 3. For question 2, the document displays a term structure of interest rates over 5 periods. It then constructs zero coupon bond trees and calculates yields, yield to maturities, and volatility for 2 year bonds.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    FORM: Assignment on BDT Problems

    Name Pushkaraj Dhake


    Roll NO.: 18448

    Q 1.
    Tree of rates
    0 0.5 1
    3.990% 4.697% 5.360%
    3.964% 4.648%
    4.031%

    1 period discount factors


    0.9804 0.9771 0.9739
    0.9806 0.9773
    0.9802

    Q. 1.1 Assuming probabilities as 0.5


    Cash Flows
    0 0.5 1 1.5
    0 50.0000 50.0000 1050.0000
    50.0000 50.0000 1050.0000
    50.0000 1050.0000
    1050.0000
    Above tree is similar to:
    0 0.5 1
    0.0000 50.0000 1072.5946
    50.0000 1076.1509
    1079.2551
    Above tree is similar to:
    0.00 0.50
    0 1099.718
    1106.757
    Above tree is similar to
    0
    1081.6584
    Final Answer

    Q. 1.2 Assuming probabilities as 0.5


    Tree of rates Rates with Caps
    0 0.5 1 0 0.5 1
    3.990% 4.697% 5.360% 3.990% 4.500% 4.500%
    3.964% 4.648% 3.964% 4.500%
    4.031% 4.031%

    1 period discount factors


    0.9804 0.9771 0.9739
    0.9806 0.9773
    0.9802

    Q. 1.2 Assuming probabilities as 0.5


    Cash Flows
    0 0.5 1 1.5
    0.0000 0.0000 0.0987 0.4300
    0.0000 0.0741
    0.0000

    Above tree is similar to


    0 0.5 1
    0.0000 0.0000 0.3443
    0.0362

    Above tree is similar to


    0.00 0.50
    0 0.1860

    Above tree is similar to


    0
    0.1823
    Final Answer

    Q2
    Time 0 1 2 3 4
    I year rates
    8.00% 7.68% 8.17% 7.94% 7.55%
    10.36% 10.64% 9.95% 9.08%
    13.84% 12.47% 10.93%
    15.63% 13.14%
    15.81%
    1 year discount factors

    0.9259259 0.92871034 0.9244707 0.9264132 0.9297828027


    0.90610899 0.9038715 0.9094779 0.9167230451
    0.8784027 0.8891007 0.9014921498
    0.8648275 0.8838357055
    0.8634907477
    Q 2.1
    1 year zero coupon bond tree
    0 1
    0.9259 1
    1

    2 year zero coupon bond tree


    0 1 2
    0.8495 0.9287 1
    0.9061 1
    1

    3 year zero coupon bond tree


    0 1 2 3
    0.7669 0.8490 0.9245 1
    0.8075 0.9039 1
    0.8784 1
    1

    Q 2.2 2 year zero coupon bond yield


    8.5001%

    Q 2.3 2 year zero coupon bond ytms 1 year from now


    8.5291%
    11.2852%

    Q 2.4 Volatility of 2 year zero coupon bond ytm over the one year period
    14.0007%
    Time 0 1 2 3 4
    I year rates
    8.00% 7.68% 8.17% 7.94% 7.55%
    10.36% 10.64% 9.95% 9.08%
    13.84% 12.47% 10.93%
    15.63% 13.14%
    15.81%
    1 year discount factors

    0.92592593 0.92871 0.924471 0.926413 0.929783


    0.906109 0.903871 0.909478 0.916723
    0.878403 0.889101 0.901492
    0.864827 0.883836
    0.863491
    Q 2.1
    1 year zero coupon bond tree
    0 1
    0.9259 1
    1

    2 year zero coupon bond tree


    0 1 2
    0.8495 0.9287 1
    0.9061 1
    1

    3 year zero coupon bond tree


    0 1 2 3
    0.7669 0.8490 0.9245 1
    0.8075 0.9039 1
    0.8784 1
    1

    Q 2.2 2 year zero coupon bond yield


    8.5001%

    Q 2.3 2 year zero coupon bond ytms 1 year from now


    8.5291%
    11.2852%

    Q 2.4 Volatility of 2 year zero coupon bond ytm over the one year period
    14.0007%

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