Question: For a Treasury futures contract how do you think the
For a Treasury futures contract, how do you think the cost of carry will affect the decision of the short as to when in the delivery month the short will elect to deliver?
Answer to relevant QuestionsExplain the asymmetric effect on the variation margin and cash flow for the short and long in an interest-rate futures contract when interest rates change. How is the implied volatility of an option determined? When the buyer of a put option on a futures contract exercises, explain the resulting position for the buyer and the writer. Suppose that a dealer quotes these terms on a five-year swap: fixed-rate payer to pay 4.4% for LIBOR and fixed-rate receiverto pay LIBOR for 4.2%. Answer the below questions. (a) What is the dealer’s bid-asked spread? (b) ...Value a three-year interest rate floor with a $10 million notional amount and a floor rate of 4.8% using the binomial interest-rate trees shown in Exhibit 31-11.
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