21.21. Calculate the price of a cap on the 3-month LIBOR rate in 9 months time for...
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21.21. Calculate the price of a cap on the 3-month LIBOR rate in 9 months’ time for a principal amount of $1,000. Use Black’s model and the following information:
Quoted 9-month Eurodollar futures price = 92 Interest rate volatility implied by a 9-month Eurodollar option = 15% per annum The 12-month risk-free interest rate with continuous compounding = 7.5% per annum Cap rate = 8% per annum.
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