Arbitrage Free Valuation Framework

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The Arbitrage-Free Valuation Framework by Steven V. Mann, PhD. Steven V. Mann, PhD, is at the University of South Carolina (USA). LEARNING OUTCOMES Mastery The candidate should be able to: explain what is meant by arbitrage-free valuation of a fixed-income instrument calculate the arbitrage-free value of an option-free, fixed-rate coupon bond describe a binomial interest rate tree framework describe the process of calibrating a binomial interest rate tree to match a specific term structure describe the backward induction valuation methodology and calculate the value of a fixed-income instrument given its cash flow at each node compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial lattice describe pathwise valuation in a binomial interest rate framework and calculate the value of a fixed-income instrument given its cash flows along each path describe a Monte Carlo forward-rate simulation and its application describe term structure models and how they are used L E A R N I N G M O D U L E 2 The presentation of the binomial trees in this reading was revised to conform with other readings in 2018 by Donald J. Smith, PhD, Boston University (USA)....