Consider a call option with an exercise rate of x on an interest rate, which we shall

Question:

Consider a call option with an exercise rate of x on an interest rate, which we shall denote as simply L. The underlying rate is an m-day rate and pays off based on 360 days in a year. Now consider a put option on a $1 zero bond that pays interest in the add-on manner (as in Eurodollars) based on the rate L. The exercise rate is X. Show that the interest rate call option with a notional amount of $1 provides the same payoffs as the interest rate put option if the notional amount on the put is $ 1 [1 + x(m/360)] and its exercise price, X, is $1/[1 4- x(m/360)]. If these two options have the same payoffs, what does that tell us about how to price the options?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
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