This report addresses key questions from ACST828 Assignment 1, focusing on financial derivatives and their valuation. The report begins by analyzing interest rate swaps and zero coupon bonds, computing zero coupon bond prices, yields, and forward interest rates based on provided Treasury bond data. It then calculates the swap rate for a 2-year swap. The report further explores option pricing, comparing 'at the money' and 'out of the money' options, as well as straddles and strangles, and explaining how the law of one price applies. The report also addresses the binomial option pricing model, detailing the set of possible prices for the underlying asset at maturity, the probability distribution, and the expected growth rate of the stock price under this distribution. The report provides a comprehensive analysis of financial concepts and their practical applications.
![[object Object]](/_next/static/media/star-bottom.7253800d.svg)
