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Lecture 16 - Backward Induction and Optimal Stopping Times

Lecture 16 - Backward Induction and Optimal Stopping Times

This video was recorded at YALE - ECON 251 - Financial Theory. In the first part of the lecture we wrap up the previous discussion of implied default probabilities, showing how to calculate them quickly by using the same duality trick we used to compute forward interest rates, and showing how to interpret them as spreads in the forward rates. The main part of the lecture focuses on the powerful tool of backward induction, once used in the early...

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