November 18, 2010MATH 2510: Fin. Math. 2 1 Hand-Outs, I Hull’s Chapters 2, 3 and 5. Futures markets. Next week’s topic. (Two-word version: think forward.)

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Presentation transcript:

November 18, 2010MATH 2510: Fin. Math. 2 1 Hand-Outs, I Hull’s Chapters 2, 3 and 5. Futures markets. Next week’s topic. (Two-word version: think forward.) A note about ”Riding the yield curve”. Fits surprisingly well w/ Course Work #2 --- today’s main topic.

November 18, 2010MATH 2510: Fin. Math. 2 2 Hand-Outs, II A note about lognormal distributions etc. – in light of yesterday’s Workshop(s). Exercises for Wed. Nov. 24 Workshop. Note the singular – now Huamao gets time off. … and as usual: these slides

November 18, 2010MATH 2510: Fin. Math. 2 3 Course Work #2 Nice work. Hard work –though Q1+2 wasn’t really supposed to. Yields seem to indicate annual coupons. I don’t know why. I’ll post my spreadsheet on the course homepage. Q3 is useful. Now let’s look at some pictures.

November 18, 2010MATH 2510: Fin. Math. 2 4 Riding the Yield Curve Strategy: the highest forward rate. That is: where the zero-copon yield curve is steepest, not highest. You hit pay dirt if the yield curve doesn’t move. But that’s a big ”if”. The strategy is risky and/or the market is likely to move against you. Equations, pictures and numbers in the note.