校准

问题如下：

Black directs Sun to complete the following task: Test that the binomial interest tree has been properly calibrated to be arbitrage-free. A benefit of performing Task is that it:

选项：

A.

enables the model to price bonds with embedded options.

B.

identifies benchmark bonds that have been mispriced by the market.

C.

allows investors to realize arbitrage profits through stripping and reconstitution.

解释：

Correct Answer: A

Calibrating a binomial interest rate tree to match a specific term structure is important because we can use the known valuation of a benchmark bond from the spot rate pricing to verify the accuracy of the rates shown in the binomial interest rate tree. Once its accuracy is confirmed, the interest rate tree can then be used to value bonds with embedded options. While discounting with spot rates will produce arbitrage-free valuations for option-free bonds, this spot rate method will not work for bonds with embedded options where expected future cash flows are interest-rate dependent (as rate changes impact the likelihood of options being exercised). The interest rate tree allows for the alternative paths that a bond with embedded options might take.

B is incorrect because calibration does not identify mispriced benchmark bonds. In fact, benchmark bonds are employed to prove the accuracy of the binomial interest rate tree, as they are assumed to be correctly priced by the market.

C is incorrect because the calibration of the binomial interest rate tree is designed to produce an arbitrage-free valuation approach and such an approach does not allow a market participant to realize arbitrage profits though stripping and reconstitution.