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What is the value of a European swap option that gives the holder the right to enter into a 3- year annual-pay swap in four
What is the value of a European swap option that gives the holder the right to enter into a 3- year annual-pay swap in four years where a fixed rate of 5% is paid and LIBOR is received? The swap principal is $10 million. Assume that the yield curve is flat at 5% per annum with annual compounding and the volatility of the swap rate is 30%.
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