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LOS 35.h: Describe a Monte Carlo forward-rate                      READING 35: THE ARBITRAGE-FREE VALUATION FRAMEWORK
   simulation and its application.

    EXAMPLE: You now want to  value the same                                    MODULE 35.2: BINOMIAL TREES, PART 2
    three-year, 3% annual-pay Treasury bond as
    discussed before, using the Monte Carlo
    simulation method and you have generated
    the following data:




























                                                             Once again same prior results = $94.485!








                                                                   Interest rates calibrated to ensure that the valuation obtained was
                                                                   consistent with market prices (i.e., arbitrage-free)!
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