Suppose that zero rates are as in Problem 21.14. Use DerivaGem (with LIBOR discounting) to determine the

Question:

Suppose that zero rates are as in Problem 21.14. Use DerivaGem (with LIBOR discounting) to determine the value of an option to pay a fixed rate of 6% and receive LIBOR on a five-year swap starting in one year. Assume that the principal is $100 million, payments are exchanged semiannually, and the swap rate volatility is 21%.