Sep 2006 3(ii)_Volatility of the Forward Bond Price

Discussion in 'SP6' started by Edwin, Apr 6, 2013.

  1. Edwin

    Edwin Member

    The examiner's report speaks about adjusting the volatility of the 1 year Forward Bond price to be;-

    vol(F_1) = vol(5 year ZCB - 1 year ZCB)

    taking into account the correlation between the 5 yr ZCB interest rates and the 1 yr ZCB interest rates , can someone please explain to me why this is the case?
     
    Last edited by a moderator: Apr 6, 2013
    Edwin, Apr 6, 2013
    #1
  2. Edwin

    Edwin Member

    Just saw I had asked this twice. http://acted.co.uk/forums/showthread.php?t=7860
     
    Edwin, Apr 20, 2013
    #2

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