New answers tagged interest-rates
One of the motivations for multifactor models such as Two-Factor-HW, HJM and LMM (Lobor-Market-Model) is derived from the properties of the yield curve. One can run a Principal-Component-Analysis on yield-curve data in order to analyse the number of independant factors contributing to yield curve movements. It has been shown that there are generally three ...
By derivating the Black-Scholes formula in function of r (ρ=∂C/∂r), you get ρ_call=0.01TKe^(-rT) N(d_2 )=ρ_put+0.01TKe^(-rT) You can see that call prices increase (and put prices decrease) if interest rates (risk-free) increase.
Personally I think there is no easy answer to this question. Economically a rise of interest rates often means an increased demand for capital. Banks need more money to lend to the industry thus they increase rates to entice consumers. On the other hand a demand for capital on the side of the economy often means increased market activity - companies want ...
This is a basic utility exercise. I would guess the additional assumption you are missing to solve the exercise is that the player would be willing to accept the fair game but nothing worse. To make this a fair game, the maximal amount which could be paid to enter the game, would result in zero expected loss of utility (nobody would accept anything worse). ...
If there is not a entry fee, I cannot lose money for at worst, I win 0USD.
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