answer these questions please, it is from derivative module

(a) Under the terms of an interest rate swap, you have agreed to pay a fixed swap rate of 3.4% per annum and to receive six month LIBOR in return on a notional principal of 100mm, with payments being exchanged every six months. The swap has a remaining life of 17 months. The yield curve is currently flat at 3.40% per annum for all maturities up to 2 years. The six month LIBOR rate two months ago was 3.80% per annum. All rates are compounded semiannually. What is the value of the swap from your perspective? [8 marks] (b) (i.) What does it mean to say that the delta of a call option is 0.5 ? How would you interpret this information? (ii.) How can a short position in 1,000 options be made delta neutral when the delta of each option is 0.5 ? (iii.) An option writer is looking to hedge his exposure against movements in the underlying using the underlying stock. Under what circumstances is this hedging likely to fail? How is this likely to affect the price demanded by an option writer and the associated implied volatility? (c) A non-dividend paying stock has a price of $64.50, a one month call option on that stock with a strike of $65 is trading at a price of \$2.20. One month Libor is at 2.5% (annualised, continuously compounded). What is the no-arbitrage price of a put on the same stock with the same strike? (d) A small pharmaceutical company has used up all of its funding equity in developing a single new drug. The FDA are due to announce whether the drug has received approval or not in one week. Design an option strategy to profit from the announcement assuming that the likelihood of approval is 50%, briefly mention any key assumptions in your