Suppose that the LIBOR zero rate is flat at 5% with annual compounding. In a 5-year swap,

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Suppose that the LIBOR zero rate is flat at 5% with annual compounding. In a 5-year swap, company X pays a fixed rate of 6% and receives LIBOR. The volatility of the 2-year swap rate in 3 years is 20%.

(a) What is the value of the swap?

(b) Use DerivaGem to calculate the value of the swap if company X has the option to cancel after 3 years.

(c) Use DerivaGem to calculate the value of the swap if the counterparty has the option to cancel after 3 years.

(d) What is the value of the swap if either side can cancel at the end of 3 years?

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Options Futures And Other Derivatives

ISBN: 9780131499089

6th Edition

Authors: John Hull

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Question Posted: Oct 21, 2024 02:00 AM

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Suppose that the LIBOR zero rate is flat at 5% with annual compounding. In a 5-year swap,

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Options Futures And Other Derivatives

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