In Exercise 25.14 of the ASM Manual, we are told to determine the lognormal yield volatility of 6-month zero-coupon bonds issued at the end of three months.
We are also told that each period in the tree is 3 months.
When we solve for price of a bond at a node, we use the formula
P= (1/ (1+R)^n)
on page 524 it says "where R is the yield to maturity and n is the number of years to maturity."
So shouldn't n in this case be .5, because we are talking about 6-month bonds?????
they use n=.25
We are also told that each period in the tree is 3 months.
When we solve for price of a bond at a node, we use the formula
P= (1/ (1+R)^n)
on page 524 it says "where R is the yield to maturity and n is the number of years to maturity."
So shouldn't n in this case be .5, because we are talking about 6-month bonds?????
they use n=.25
ASM 25.14, lognormal yield volatilities