right...it seems like it should taper to 0 but the more I think about it - maybe its a boundary condition definition that is being applied so as to make it consistent with the parallel shift paradigm without having to have an extra key rate (the 0-2 year maturity)...not inconsistent just...
David,
In the key rates example (5.b.3) it appears that when the 2 year key rate is shifted it affects only the rates above it up to 5 years...shouldn't it also affect the rates below it i.e from .5 years to 2 years?
jy
David,
In spreadsheet 3a8 theres an example of Hull Long Bond Forward. Is the $40 coupon given or is iot being backed out? I dont see am indication of coupon payment ...is the interest rate of 4% assumed to be the coupon?
jy
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