Reading 42 Exhibit 7: how to find YTMs using short rates from CIR model?

[crazydriver]

Hi guys, I was trying to understand Exhibit 7 in Reading 42 (P253-254 in the book) for the CIR term structure model. Somehow I couldn’t understand the second half of the table, where YTMs are listed for various maturities at different t’s. How are these YTM values calculated? What does it mean by “pricing of bonds consistent with the evolution of the short-term interest rates”? What is the time step size of t, a day, a month, or a year?
I guess the same question for Exhibit 8 for the Vasicek Model.
Any idea would be greatly appreciated!

 

[hacky]

well I have the same question!! Did you find an answer?

 

[parth_993]

On page 251 of the same book, it is quoted:
“The detailed description of these models depends on mathematical and statistical knowledge well outside the scope of the investment generalist’s technical preparation. Yet, these models are very important in the valuation of complex fixed-income instruments and bond derivatives. Thus, we provide a broad overview of these models in this reading. Equations for the models and worked examples are given for readers who are interested.”
I assume that they are outside the scope of the exam also bcoz the characteristics are the only thing given in third party prep provider. Given that, i would suggest that u do not waste time on that right now. If you hold the inclination of learning that even after the exam, you will be under no time constraint then.

 

[hacky]

maybe I understood… it is quite complicated! Since there are sthocastic processes and probability under consideration dz moves following stochastic processes and so dr moves …
The second part of the table is the result of a simulation…
However reading 42 is:
_ full of mistakes (just look the errata corrige)
_ and it’s bad to introduce something without explaining it!