Suppose the cap rate of a cap and the floor rate of a floor are both set equal to L Let C(t T 0 , ,T n ) and F(t T 0 , ,T n ) denote the time t value of the cap and floor, respectively Prove the following cap floor parity relation n C F B(t T 1) (1 L)B(t T ) i 1...

Certainly To prove the capfloor parity relation lets start by defining the terms and breaking down t ...

Suppose the cap rate of a cap and the floor rate of a floor are both set

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Suppose the cap rate of a cap and the floor rate of a floor are both set equal to L. Let C(t; T₀, ··· ,T_n) and F(t; T₀, ··· ,T_n) denote the time-t value of the cap and floor, respectively. Prove the following cap-floor parity relation:

n C - F = [B(t; T-1) (1 + L)B(t; T;)]. i=1

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Nov 30, 2023 07:31 AM

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Suppose the cap rate of a cap and the floor rate of a floor are both set

Question:

n C - F = [B(t; T₁-1) − (1 + α¡L)B(t; T;)]. i=1

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Certainly To prove the capfloor parity relation lets start by defining the terms and breaking down t...View the full answer

Mathematical Models Of Financial Derivative

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