HW-4 CIS, summer 2020 Question 1. Commodity "fixed-for-floating" swap Today is Oct 16,201X and spot oil trades at $58 p/b. Assume that all futures contracts stop trading on 17" of the delivery month. Your client asks you to quote a fixed-for-floating price of 100,000 barrels of oil for 12 monthly settlements. Cash will be exchanged on 17" of every month. E.g., if you quote today a fixed price of $61 p/b for next 12 months; if on Dec 16 oil settles at $65, you pay that client on Dec 17 $(65-61) * 100,000-$400,000). If on Jan. 16 oil settles at $58, client pay you that on Jan. 17 $(61-58) *100,000=$300,000). 4M "Floating price oil is defined as the price at which spot" oil settles on the Calculate the zero- profit swap price for the oil swap if interest rate is 12% p/a (with monthly compounding) USD/barrel Months from today Price per barrel delivered after 1M 58.7 2M 59.4 3M 60.2 60.9 5M 61.4 6M 61.9 7M 62.4 8M 62.8 9M 63.2 10M 63.5 11M 63.7 1Y 64.0 13M 64.1 14M 64.2 15M 64.3 HW-4 CIS, summer 2020 Question 1. Commodity "fixed-for-floating" swap Today is Oct 16,201X and spot oil trades at $58 p/b. Assume that all futures contracts stop trading on 17" of the delivery month. Your client asks you to quote a fixed-for-floating price of 100,000 barrels of oil for 12 monthly settlements. Cash will be exchanged on 17" of every month. E.g., if you quote today a fixed price of $61 p/b for next 12 months; if on Dec 16 oil settles at $65, you pay that client on Dec 17 $(65-61) * 100,000-$400,000). If on Jan. 16 oil settles at $58, client pay you that on Jan. 17 $(61-58) *100,000=$300,000). 4M "Floating price oil is defined as the price at which spot" oil settles on the Calculate the zero- profit swap price for the oil swap if interest rate is 12% p/a (with monthly compounding) USD/barrel Months from today Price per barrel delivered after 1M 58.7 2M 59.4 3M 60.2 60.9 5M 61.4 6M 61.9 7M 62.4 8M 62.8 9M 63.2 10M 63.5 11M 63.7 1Y 64.0 13M 64.1 14M 64.2 15M 64.3