8007 Questions Bank

Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

A bond has modified duration 6 and convexity 30. Find the duration-convexity approximation to the percentage change in bond price when its yield increases by 5 basis points

Let X be a random variable normally distributed with zero mean and let . Then the correlation between X and Y is:

Find the first-order Taylor approximation p(x) for the function: at the point .