Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

detailed workings pls Payout on a swaption: During the height of COVID crisis, the 10-yr Treasury bond was yielding 0.70% and the 10-yr swap rate

detailed workings pls

image text in transcribed

Payout on a swaption: During the height of COVID crisis, the 10-yr Treasury bond was yielding 0.70% and the 10-yr swap rate was at 0.90%. Despite all the inflation warnings, you took the view that the 10-yr swap rate cannot possibly go above 1.50% and, therefore, you sold a 12-month swaption on a 10-yr 1.50% Payer Swap on a notional of $100mln. Today, the swaption expires, and it turns out you were wrong. The 10-yr swap rate is quoted at 1.78%. Roughly what cash settlement will you have to make to the buyer of the swaption? $2.54min $1.33mln $8.00min $4.13min $6.34min

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Analysis For Financial Management

Authors: Robert C. Higgins

10th International Edition

007108648X, 9780071086486

More Books

Students also viewed these Finance questions