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dear david, one of the assumptions of the model is the (continuous ) risk free rate is constant and known. But in the calculation of d1, the denominator ( sigma * sqrt(time) is common for both the two parts in the numerator. The volatility is represented for continuously compounded returns...

Dear David, Ref: Hull 6th ed. page 283 and page 284. In the example 13.3 , the annual volatlity is said to be 20% and the formula divides the volatility by square root of 3 to calcuate the probability distribution for the continuously compounded average return over the three year period...

Hi David, The method of converting the continuous forward rate in to a semi annual compounding forward rate (pg 164) has not been applied for valuation of currency swap as portfolio of forward contracts (Ref: Hull page 170 ). Any reasons for it? Thanks and regards

Hi David, Reference: Interest rate futures. Page 135 Hull. Is it possible to have a negative value,while trying to select CTD bonds. ( Quoted Bond price- (Settlement Price *Conversion factor). If so, what does it convey intuitively. Page 139. I could not understand the two...