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Swap Just to be clear, (3.4c) leads to (3.5a) when we assume lognormal $R(\tau)$. Lognormal $R(\tau)$ means we can write $$R(\tau) = R_0 e^{-\frac{1}{2}\sigma^2 \tau + \sigma \sqrt{\tau} Z}$$ with $Z$ normal, and I'm assuming a zero mean -- which I think is required. Then for (3.4c) we have for the expectation value: $$ E\left[(R(\tau) - R_0)^2 \right] = ...

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