Notional amount Coupon Type Coupon rate Coupon frequency Currency Issue Date Maturity Date Trade Date Settlement Lag Day Count Inflation Reference Index Inflation Reference Index Level at issue Inflation Reference Index

Level at Settlement Tasks: 25000 Fixed 6.75% Semi-annual USD 31/7/2020 21/7/2025 18/09/2020 Assume the CPI index I follows a log-normal model (geometric Brownian motion), i.e., dI udt odW, T+1 where W is a Wiener process, the constant drift, and o 0 is the diffusion coefficient with estimates û 0.05321 and 0.06358. Assume there is no inflation indexation lag. E₂ -0.5% ACT/ACT US Consumer Price Index 237.14365 251.14721 Assume the issuers yield curve on the valuation date is given by the Nelson-Siegel-Svensson zerocoupon rate function parameters, E E₁ 5.9% -1.6% E₁ 1% W₂ 5 W₁ 0.5 a) Compute the accrued interest. b) Simulate 1000 scenarios CPI index and analyse its simulated distribution at the bond's maturity. c) Estimate the inflation linked bond fair value using the Monte Carlo Simulation method. d) Summarise and analyse the inflation linked bond price distribution, including risk measures.