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3) Given 5 trials for the 3-month forward rates for times 0, 3-month, 6-month, and 9-month. Assume continuous compounding. 1) Value by Monte-Carlo a 1-year
3) Given 5 trials for the 3-month forward rates for times 0, 3-month, 6-month, and 9-month. Assume continuous compounding. 1) Value by Monte-Carlo a 1-year cap with quarterly caplets? Assume a strike of 3% and a notional of $1000? Note: A cap has no payoff at 3-month (No first coupon) 0 0.25 0.5 1 Trial\Time 1 2% 2% 3% 3% 0.75 2% 3% 5% 2 3 3% 3% 4% 3% 3 4 3% 3% 3% 4% 2% 3% 5 3% 3% 6% 2) If the initial zero curve (continuous compounding) is given below, what is the value of the 3 caplets for a 1-year cap with strike equal to 2.5%? Time 0.25 0.50 0.75 1.00 Spot rate 2.00% 2.50% 3.00% 3.50% 3) What is the value of the 1-year Cap? 3) Given 5 trials for the 3-month forward rates for times 0, 3-month, 6-month, and 9-month. Assume continuous compounding. 1) Value by Monte-Carlo a 1-year cap with quarterly caplets? Assume a strike of 3% and a notional of $1000? Note: A cap has no payoff at 3-month (No first coupon) 0 0.25 0.5 1 Trial\Time 1 2% 2% 3% 3% 0.75 2% 3% 5% 2 3 3% 3% 4% 3% 3 4 3% 3% 3% 4% 2% 3% 5 3% 3% 6% 2) If the initial zero curve (continuous compounding) is given below, what is the value of the 3 caplets for a 1-year cap with strike equal to 2.5%? Time 0.25 0.50 0.75 1.00 Spot rate 2.00% 2.50% 3.00% 3.50% 3) What is the value of the 1-year Cap
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