Learning Effects in International Portfolio Selection Incorporating Interest Rate and Exchange Rate Risks - 政大學術集成

– Taking any node in the tree as the current state induces a binomial interest rate tree and, again, a term structure.... An Approximate Calibration

• Goal is to construct a no-arbitrage interest rate tree consistent with the yields and/or yield volatilities of zero-coupon bonds of all maturities.. – This procedure is

– Taking any node in the tree as the current state induces a binomial interest rate tree and, again, a term structure.... Binomial Interest Rate

– at a premium (above its par value) when its coupon rate c is above the market interest rate r;. – at par (at its par value) when its coupon rate is equal to the market

– at a premium (above its par value) when its coupon rate c is above the market interest rate r;. – at par (at its par value) when its coupon rate is equal to the market

• Extension risk is due to the slowdown of prepayments when interest rates climb, making the investor earn the security’s lower coupon rate rather than the market’s higher rate.

• Extension risk is due to the slowdown of prepayments when interest rates climb, making the investor earn the security’s lower coupon rate rather than the market’s higher rate..

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