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Hi there, on p.47 of "modern Pricing of interest rate Derivatives" Riccardo Rebonato, is says that using a simple application of Ito's lemma he derives the followig result for forward rates: where and is a real valued pre visible process integrable wrt z(t). z(t) is a wiener process. I am not sure how ...

I have been struggling for days with this, and haven't found any soulution to the problem on the internet. Guys, I was wondering if anyone could show me how to mathematically derive the formula for the weights of asstes M and X of an optimal risky portfolio given by: Weight.M=[(E(rM)-rf)Std(X)^2 - (E(rX)-rf)Cov(M,X)]/[(E(rM)-rf)Std(X)^2 + (E(rX)-rf)Std(M)^2 - (E(rM)-rf+E(rX)-rf)Cov(M,X)] and ...

Hello everyone, please support me in this (basic) technical matter: The Merton option pricing method has been recently proposed in macroeconomics as a method to measure the sovereign credit risk. After the construction of an appropriate public sector balance sheet dividing the liabilities in senior and junior claims, the following two equation simple model is applied in a recent IMF paper...

Hi there, on p.47 of "modern Pricing of interest rate Derivatives" Riccardo Rebonato, is says that using a simple application of Ito's lemma he derives the followig result for forward rates: where and is a real valued pre visible process integrable wrt z(t). z(t) is a wiener process. I am not sure how ...