21.20. A swaption gives the holder the right to receive 7.6% in a 5-year swap starting in...
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21.20. A swaption gives the holder the right to receive 7.6% in a 5-year swap starting in 4 years.
Payments are made annually. The forward swap rate is 8% with annual compounding and its volatility is 25% per annum. The principal is $1 million and risk-free (OIS) rates for all maturities are 7.8% (with continuous compounding). Use Black’s model to price the swaption. Compare your answer to that given by DerivaGem.
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