5

I interpret your question to be asking about curve fitting techniques (for constructing fitted par/zero curves), since a term structure model (HW, LMM, etc.) can always be constructed to fit a given yield curve perfectly. In an institutional setting, there really hasn't been any new models being proposed, because the existing ones are all very flexible and ...


4

Since contracts on physical goods have associated costs, it makes sense that the term structure curve would be upward sloping. Since there is no cost associated with delivery for the VIX and contango is considered to exist in healthy markets, is the upward slope simply accounting for the greater potential for the market to become unhealthy over longer ...


3

In my understanding, the mortgage prepayment option, at any point in time, is a function of the value of the mortgage from that point in time forward. This value, in turn, is a function of the future evolution of the interest rates and any optimal decision taken by the mortgagor along that path and all paths that evolve from any future 'branch'. So in ...


2

This is not an answer, but instead advice: Since you're new to quant and volatility then you should start with something other than a volatility or a rates product because those are going to be some of the most complicated products. First, you need to gain some comfort with quant stuff. Then, you can move onto more complicated topics. I'm not saying that ...


1

To answer this question, we must fix a bit of the vocabulary, first. I will try to stick as close as possible to your conventions: Spot rate: (also called zero rate) is the annualised rate of return on a non-coupon-bearing bond (hence zero coupon bond). For a given maturity $t$, let us call $r_t$ the corresponding spot rate, i.e. we have $$ PV_0(t)=\left(\...


1

There is a lot of prepayment models for MBS, mostly every big bank has its own proprietary model. But the prepayment model can take into account many variables than only interest rate. A probability of prepaymet also depends on geographical location of a debtor (for example there is a lower probability that a mortgage would be prepaid in New York than in ...


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