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The interest rate delta of a derivative contract is defined as the partial derivative, /r...

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Finance

The interest rate delta of a derivative contract is defined as the partial derivative, /r , of its value, and measures the sensitivity of the price to interest rate changes.

Assume that Z(0, j) = 1/ (1+r)^j . Compute the interest rate delta of :

  1. a) An annual Libor stream (as in 3(b), with = 1) starting at T0 = 0 and ending at Tn = n.

  2. b) A fixed rate annuity paying c each year from year 1 to year n.

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