The heating oil swap offered by KCNB is based on the average daily price of HO for one year and cost nothing to enter into.The purpose of this question is to evaluateif KCNB's quote of 1.522 $/gallon for the swap is fair.

(a) Show that a swap is a special case of a collar for which the cap and floor strike prices are identical.

(b) Use your answer to part (a) to determine if the quote of 1.522 $/gallon for the swap is fair. To answer this question you have to use DerivaGem to value each of the options whose combination replicates the swap