Lecture on 1st of March

Last time we started our discussion of chapter 4  on reserves. We introduced the concept of (stochastic) cash flows and defined the concept of integrating with respect to it and arrived at a definition of (stochastic) reserves.

Next time we will continue with Thm 4.6.3 in the book. This is an important result that enables us to write the reserves in an explicit form (Thm 4.6.10).

I have now uploaded Exercises 2 and you can start working with Problems 1,2 and 3. 

In addition, you can find a small discussion on the construction of Yield curves in the case of US treasury yields. Note that in practice one does not construct the Yield curve based only on ZCBs but based on different interest rate derivatives (SWAPs, FRAs...).