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Financial Risk Manager Part 2

Financial Risk Manager Part 2

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An analyst is modeling spot rate changes using short rate term structure models. The current short-term interest rate is 5% with a volatility of 80 bps. After one month passes the realization of dW, a normally distributed random variable with mean 0 and standard deviation √dt, is -0.5. Assume a constant interest rate drift, λ, of 0.36%. What should the analyst compute as the new spot rate?

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