Calculate the total convexity/timing adjustment in Example 34.3 of Section 34.4 if all cap volatilities are 18%
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Calculate the total convexity/timing adjustment in Example 34.3 of Section 34.4 if all cap volatilities are 18% instead of 20% and volatilities for all options on five-year swaps are 13% instead of 15%. What should the five year swap rate in three years' time be assumed for the purpose of valuing the swap? What is the value of the swap?
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In this case and for all It is still true that and Equa...View the full answer
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Sandhya Sharma
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