Suppose that the LIBOR yield curve is flat at 8% with annual compounding. A swaption gives the
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Suppose that the LIBOR yield curve is flat at 8% with annual compounding. A swaption gives the holder the right to receive 7.6% in a five-year swap starting in four years. Payments are made annually. The volatility for the swap rate is 25% per annum and the principal is $1 million. Use Black's model to price the swaption. Compare your answer with that given by DerivaGem.
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Kirti Kaushal
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