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6. Today is March 1, 2021 and the continuously compounding interest rate is 2% per annum. It is known that the interest rate will maintains
6. Today is March 1, 2021 and the continuously compounding interest rate is 2% per annum. It is known that the interest rate will maintains 2% until August 31 and equals to 1% from September 1 2021 to February 28, 2022. Consider a one-year future contract, a one-year American put option, and a one-year equity swap (ES) contract on a non-dividend paying stock with current price of $35. The ES with 4 transaction dates on May 31, 2021, August 31, 2021, November 30, 2021 and February 28, 2022, will deliver one unit of the underlying stock to the holder while receiving a constant cash among on each of the transaction date. (a) What is the no-arbitrage forward price of a one-year forward contract? Is it the same as the no-arbitrage future price? Explain briefly. (b) What is the equity swap price (the constant cash amount paid to exchange for the stock at each transaction date)? 6. Today is March 1, 2021 and the continuously compounding interest rate is 2% per annum. It is known that the interest rate will maintains 2% until August 31 and equals to 1% from September 1 2021 to February 28, 2022. Consider a one-year future contract, a one-year American put option, and a one-year equity swap (ES) contract on a non-dividend paying stock with current price of $35. The ES with 4 transaction dates on May 31, 2021, August 31, 2021, November 30, 2021 and February 28, 2022, will deliver one unit of the underlying stock to the holder while receiving a constant cash among on each of the transaction date. (a) What is the no-arbitrage forward price of a one-year forward contract? Is it the same as the no-arbitrage future price? Explain briefly. (b) What is the equity swap price (the constant cash amount paid to exchange for the stock at each transaction date)
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