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a) Using Smith's multiplier (1991) applies to Black's (1976) method to calculate the price of a Payer Swaption knowing the following information: - A 2-year
a) Using Smith's multiplier (1991) applies to Black's (1976) method to calculate the price of a Payer Swaption knowing the following information: - A 2-year Payer Swaption written on a 4-year Swap - Half-yearly composition - Swap forward rate starting in 2 years and ending in 6 years: 8.9% - Exercise rate: 7.5% - Risk free rate: 2.59% - The volatility of the forward sawp per year: 24% - Swap principal: $ 2,000,000 b) Could we use a similar method to calculate a call on an electricity swap. To explain.
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