<t>Hey,I've just worked this out, but I think it makes sense...For arbitrage to exist one must be able to buy in one market and sell in another for a higher price risklessly. That is a fair enough assumption on its own. I dont think arbitrage has the same set of technical assumptions as econometric ...

I recommend, Gujarati, D.N., 2003, Basic Econometrics, International Edition, McGraw Hill,

<t>1) Well I see it from the fact that the face value is quoted at 100 and not 1. Im pretty sure its a standard convention though,2) 1% is the same delta r would be 1.Try it with a few different values. Its probably a useful exercise to run it thorugh a spreadsheet to get a feeling for the formula w...

<t>In an equation like this basis points will never be used as an integer. 25 BP will either be plugged in as .25 or .0025 depending on whether your price is 100 or 1. This is because your zero coupon price is 1/(1+r)^t if your final principal is 1 and 100/(1+r)^t if your final principal is 100 but ...

<t>1) You can write it as -25*0.15, its the same difference. However if your original face value is anything other than 100, it won't work.2) Because convexity is computed per 100 of market value... that is why P is divided by 100. The conventions are then constant throughout the formula.I think the...