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  3. 2. assume t = 5 years, h = 1 year and all bonds ha

2. Assume T = 5 years, h = 1 year and all bonds have face...

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Finance

2. Assume T = 5 years, h = 1 year and all bonds have face value $1. The stochastic evolution of the yield on 1-year zero-coupon bonds is given by the following tree.

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5% 4.5% - 4% 4% 3.5% 3.5% 3% s 3% 3% 2.5% 2.5% 27 2% 1.5% 1% Year 4 Year o Year 1 year 2 2 year 3 a. Compute the Vasicek delta and gamma for a 2-year zero as of period 0. Compute the Vasicek gamma for a 3-year zero as of period 0. 5% 4.5% - 4% 4% 3.5% 3.5% 3% s 3% 3% 2.5% 2.5% 27 2% 1.5% 1% Year 4 Year o Year 1 year 2 2 year 3 a. Compute the Vasicek delta and gamma for a 2-year zero as of period 0. Compute the Vasicek gamma for a 3-year zero as of period 0

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