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  1. Nicole Seaman

    YouTube T4-24: Fixed Income: Arbitrage to exploit violation of Law of One Price

    Financial Risk Manager (FRM), Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 1, Prices Discount Factors and Arbitrage. How do we exploit the Law of One Price (which asserts that--absent confounding factors like liquidity or taxes--is only one set of discount factors)? We...
  2. Nicole Seaman

    YouTube T4-21: Fixed income: Law of One Price

    The Law of One Price says that only one discount factor exists at each maturity, absent confounding factors. On the first sheet, I demonstrate why "spot rate of 4.0%" is imprecise, yet "discount factors do not lie." On the second sheet, given observed bond prices, depending on the Law of One...
  3. Nicole Seaman

    P1.T4.900. Discount function and the Law of One Price (Tuckman, Ch.1)

    Learning objectives: Define discount factor and use a discount function to compute present and future values. Define the “law of one price,” explain it using an arbitrage argument, and describe how it can be applied to bond pricing. Identify the components of a US Treasury coupon bond, and...