4.10 The Bootstrap Method (息票剥离法) used to determine zero rates An amount 2.5 can be earned on 97.5 during 3 months The 3-month rate is 4 times 2.5/97.5 or 10.256% with quarterly compounding This is 10.13% with continuous compounding Similarly the 6 month and 1 year rates are 10. 47% and 10.,54% with continuous compounding Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University4.10 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University The Bootstrap Method (息票剥离法) --used to determine zero rates • An amount 2.5 can be earned on 97.5 during 3 months. • The 3-month rate is 4 times 2.5/97.5 or 10.256% with quarterly compounding • This is 10.13% with continuous compounding • Similarly the 6 month and 1 year rates are 10.47% and 10.54% with continuous compounding