Derivatives Markets And Analysis 1st Edition R. Stafford Johnson - Solutions

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Using the put-call parity model, determine the equilibrium price of the put in Question 1, given the equilibrium call value as determined by the binomial model. Comment on the consistency of the binomial call and put models and the put-call parity model.Question 1:Consider a one-period, two-state
Assume two periods to expiration, $u=1.05, d=1 / 1.05, r_{f}=1.02, S_{0}=\$ 100$, no dividends, and $X=\$ 100$ on a European put expiring at the end of the second period.a. Find: $P_{u w}, P_{u d}, P_{d d}, P_{d}, P_{u}, P_{0}^{*}, H^{p}{ }_{u}, H_{d}^{p}, H_{0}^{P *}, I_{u}, I_{d}$, and
Suppose the US investor in Question 8 were risk averse, instead of risk neutral, and wants a risk premium of $1 \%$ (annual) for assuming the exchange-rate risk on the international investment.a. Find the expected spot exchange rate that would make the risk-averse investor indifferent between the
Prove the following conditions using an arbitrage argument. In your proof, show the initial positive cash flow when the condition is violated and prove that there are no liabilities at expiration:a. $C_{t}^{\mathrm{a}} \geq \operatorname{Max}\left[S_{\mathrm{t}}-X, 0\right]$b.
Prove the following:a. End-of-period conversion value $=X$b. End-of-period reversal value $=-X$c. End-of-period long box spread value $=X_{2}-X_{1}$d. End-of-period short box spread value $=-\left(X_{2}-X_{1}\right)$
Prove mathematically the following condition for the early exercise of a call by a call holder: $D>T V P$.
Suppose just prior to going ex-dividend, XYZ stock is trading at $\$ 65$ and is expected to go ex-dividend with a dividend expected to be worth $\$2.50$ on the ex-dividend date. What advice would you recommend to a holder of an XYZ 60 American call option trading with a TVP of $\$ 1$ ?
Suppose XYZ stock is trading $\$ 60, X Y Z$ 6o European calls expiring in one year are trading at $\$ 3$, and the annual risk-free rate is $3 \%$. Using the put-call parity model determine the equilibrium price of an XYZ 6o European put expiring in one year.
Suppose XYZ stock is trading at $\$ 60$, XYZ 60 European puts expiring in one year are trading at $\$ 2$, and the annual risk-free rate is $3 \%$. Using the put-call parity model, determine the equilibrium price of an XYZ 6o European call expiring in one year.
Determine the equilibrium price of a December S\&P 500 call, given the S\&P 500 put is trading at 50 . Assume the spot SP 500 index is at 2,500 , the risk-free rate is $5.00 \%$, dividend per index share on the S\&P 500 is $\$ 125$ at the December expiration and one year.
PI Hedge Fund has formed a proxy portfolio that it is using to identify arbitrage opportunities using put-call parity relations. The proxy portfolio is highly correlated with the S\&P 500 with a beta of 1 , is currently worth $\$ 25$ million, and is expected to pay dividends worth $\$1.25$
Explain what arbitrageurs would do if the price of an American S\&P 500 futures call with an exercise price of 2,100 were priced at 45 when the underlying futures price was trading at 2,150. What impact would their actions have in the futures option market on the call's price?
Explain what arbitrageurs would do if the price of an American S\&P 500 futures put with an exercise price of 2,200 were priced at 45 when the underlying futures price was trading at 2,150 . What impact would their actions have in the futures option market on the put's price?
Prove the following boundary conditions using an arbitrage argument. In your proof, show the initial positive cash flow when the condition is violated and prove there are no liabilities at expiration or when the positions are closed.a. European futures call option: \(C_{t} \geq
Option price relations can be seen by looking at real-time pricing, market data, and data for exchange-traded call and put options found on OMON, CALL, and PUT. Using the OMON screen for selected a stock, examine to see if the following price relations hold:a. \(C_{t} \geq
Use the Chart screen (Chart ) to generate historical prices of a selected stock and its call and put options with different expirations and expiration. Select a period in which the options were active. Create multigraphs on the Chart Menu screen using the Standard G chart with your graphs in
Use the Chart screen (Chart ) to generate historical prices for the S\&P 500 spot, and call and put options on the index with different expirations and expiration. Select a period in which the options were active. Create multigraphs on the Chart Menu screen using the Standard G chart with your
Use the Chart screen (Chart ) to generate historical prices for a selected stock and its call and put options with the same expiration and exercise price. Using the "Flag" selection tool (click "Flag" icon tab), analyze the impact of the following events on the price of the stock, call, and put:a.
Consider a one-period, two-state case in which $\mathrm{ABC}$ stock is trading at $\mathrm{S}_{0}=$ $\$ 100$, has $u$ of 1.10 and $d$ of 0.95 , and the period risk-free rate is $5 \%$.a. Using the BOPM, determine the equilibrium price of an $\mathrm{ABC} 100$ European call option
Assume two periods to expiration, $u=1.05, d=1 / 1.05, r_{f}=1.02, S_{0}=\$ 100$, no dividends, and $X=\$ 100$ on a European call expiring at the end of the second period. Find: $C_{u w}, C_{u d}, C_{d d}, C_{d}, C_{u}, C_{0}^{*}, H_{u}, H_{d}, H_{0}^{*}, B_{u}, B_{d}$, and $B_{0}^{*}$.
5 10.5 Assume ABC stock price follows a binomial process, is trading at $S_{0}=$ $\$ 100$, has $u=1.10, d=0.95$, and probability of its price increasing in one period is $0.5(q=0.5)$.a. Show with a binomial tree ABC's possible stock prices, logarithmic returns, and probabilities after one
Describe the methodology used to derive the formulas for estimating $u$ and $d$.
Suppose ABC stock has the following prices over the past 13 quarters:a. Calculate the stock's average logarithmic return and variance.b. What is the stock's annualized mean and variance?c. Calculate the stock's up and down parameters ( $u$ and $d$ ) for periods with the following lengths:i. One
Assume a binomial, risk-neutral world where $n=1, \mathrm{~S}_{0}=\$ 100, R_{f}=0.05, u=$ 1.10 , and $d=0.95$.a. What are the risk-neutral probabilities of the stock increasing in one period and decreasing in one period?b. Solve for the probabilities using the equation: \(S_{0}=P
Explain what is meant by risk-neutral pricing. What is the reason for pricing options using a risk-neutral pricing approach?
Consider a one-period, two-state case in which ABC stock is trading at $S_{\mathrm{O}}=$ $\$ 100, u=1.1$, and $d=0.95$, the period risk-free rate is $5 \%$, and the stock is expected to go ex-dividend at the end of the period with a dividend worth $\$ 1.00$ at the ex-dividend date.a.
ABC stock is trading at $\$ 100$, its annualized standard deviation is $\sigma^{\mathrm{A}}=0.3$, its mean is zero, and its continuous annual dividend yield is $2.5 \%$. The annual risk-free rate is $2.5 \%$. Determine the equilibrium prices of $\mathrm{ABC}$ American and European 100
Using Bloomberg information, estimate the equilibrium price on a call and put option on a selected stock using the BOPM Excel program. Bloomberg option input information:a. Stock price: DES or GP screen.b. Option exercise price: Option's DES, OMON, or Call screen or OSA.c. Option exercise price and
For one of the options that you evaluated in Exercise 1, evaluate the sensitivity of its binomial option values to different volatilities. Use the HVG screen to help you select the volatilities (e.g., a past volatility or one calculated with different moving averages).Exercise 1.Using Bloomberg
Download Bloomberg stock price data from a selected stock's GP screen (right-click your mouse in the graph area; click "Send Data to Clipboard" to download data to Excel). In Excel:a. Calculate columns for stock price relatives $\left(S_{t} / S_{t-1}\right)$ and logarithmic returns \(\left(\ln
Using the historical volatility and mean you calculated in Exercise 4, select an option on the stock and determine its equilibrium price using the BOPM Excel program. See Exercise 1 for finding input information from Bloomberg screens.Exercise 1.Using Bloomberg information, estimate the equilibrium
Suppose XYZ stock currently is trading at $\$ 100$ per share, has an annualized standard deviation of 0.50 , will not pay any dividends over the next three months, and the continuously compounded annual risk-free rate is $3 \%$.a. Using the Black-Scholes OPM, calculate the equilibrium price for
Using the continuous-dividend-adjusted option model, calculate the dividend-adjusted stock price, dividend-adjusted call price, and dividend-adjusted put price for the XYZ stock and options described in Problem 1. In your calculations, assume an annual dividend yield of $8 \%$.Problem 1.Suppose
Discuss the applicability of the pseudo-American model for pricing American call options.
Using the B-S OPM Excel program calculate the call option price for each stock price shown below. Assume $R=3 \%, \sigma=0.50, t=$ 0.25 per year, $X=\$ 100$, and no dividends.\[S_{0}=80,85,90,46,95,100,105,110,115, \text { and } 120\]Comment on the ability of the B-S OPM to capture the features
Using the B-S OPM Excel program, calculate the call option price for each annualized standard deviation shown below. Assume $R=$ $3 \%, S_{0}=\$ 100, t=0.25, X=\$ 100$, and no dividends.\[\sigma=0.50,0.60,0.70, \text { and } 0.80\]Comment on the relationship.
Given the following information on the XYZ stock: $S_{0}=\$ 50, \sigma=$ $0.175, R=3 \%$, and $\beta^{\mathrm{S}}=0.35$, determine the following characteristics of an XYZ 50 European call with an expiration of $t$ $=0.25$ :a. Equilibrium OPM call priceb. Expected rate of return of the
Given the information on the XYZ stock: $S_{0}=\$ 50, \sigma=0.175, R=$ $3 \%, \beta^{\mathrm{S}}=0.35$, and $E\left(R_{\mathrm{S}}\right)=-0.10$, determine the following characteristics of an XYZ 50 European put with an expiration of $t$ $=0.25$ :a. Equilibrium OPM put priceb. Expected
Suppose XYZ stock is trading at $\$ 50$, its annualized standard deviation is 0.175 , and the continuously compounded risk-free rate is $6 \%$ (annual).a. Calculate the B-S equilibrium call prices for an XYZ 50 European call expiring in 90 days $(t=0.25)$ and an XYZ 48 European call expiring
Explain the methodology and findings of the following empirical studies, examining the B-S OPM:a. Black-Scholes (1972)b. Galai (1977)c. MacBeth and Merville (1979)
Using Bloomberg's OVME screen, estimate the equilibrium price on a selected call and put option. Guide:- Select the options from the selected stock's OMON or CALL screen.- Load the option: Option Ticker - Enter OVME- On OVME screen, determine the B-S price using the continuous dividend yield
Using the OVME screen for the call and put options you evaluated in Exercise 1, evaluate the prices of the call and put options for different stock prices. Click the "Scenario" tab and set the axis for option prices and underlying stock prices.Exercise 1.Using Bloomberg's OVME screen, estimate the
Create a portfolio of at least two options on the same stock and evaluate the position in terms of the position's OPM value, delta, gamma, and theta. On the OVME screen, click the + icon next to "Deals" to add a new deal, and then click "Add Legs" from the gray "Leg" dropdown. Input information for
Using OVME, analyze the profit and stock price relation for different times prior to expiration and expiration for the following option strategies:a. Straddle Purchaseb. Straddle Salec. Bull Call Spreadd. Bear Call Spreade. Bull Put Spreadf. Bear Put Spread\section*{g. Calendar Spread}On the OVME
Create a neutral delta portfolio with two options on the same stock and evaluate the position in terms of the position's OPM value and gamma. On the OVME screen, click the + icon next to "Deals" to add a new deal, and then click "Add Legs" from the gray "Leg" dropdown. Input information for each
Assume: Current spot S\&P 500 index is at 2,500 , annual risk-free rate $=4 \%$, zero dividends, logarithmic return's annualized mean $=\mu^{\mathrm{A}}=0.10$, and logarithmic return's annualized standard deviation $=\sigma^{\mathrm{A}}=0.25$.a. Using the single-period BOPM, determine the
Suppose the following:- Spot S\&P 500 is currently at 3,000- Continuous annual dividend yield of $\psi=5 \%$- Annualized standard deviation is $\sigma^{\mathrm{A}}=0.25$- Annual risk-free rate is $R=4 \%$.- European call and put options on the S\&P 500 each with an exercise price of 3,000 and
Given the following:- The S\&P 500 futures option expiring at the end of 60 days.- The S\&P 500 futures contract expiring at the end of 120 days.- The current spot index is at $S_{0}=3,000$.- The estimated annualized volatility and mean of the spot index's logarithmic return are
Given the futures and spot information in Question 3, determine the following option prices using a 30-period binomial tree and the BOPM Excel programs:a. American futures callb. European futures callc. American spot calld. European spot calle. American futures putf. European futures put g.
Determine the price of European futures call with $X=3,000$ using the Black futures option model (Excel model). Show in a table and with a graph the Black futures option model's option prices and intrinsic values for different futures prices for the European futures call. Generate your table and
Given the following futures and spot information:- The S\&P 500 futures option expiring at the end of 60 days.- The S\&P 500 futures contract expiring at the end of 60 days.- The current spot index is at $S_{0}=3,000$.- The estimated annualized volatility and mean of the spot index's logarithmic
Assume the following:- Annual risk-free rate on US dollars $=4 \%$.- Annual risk-free rate on British pounds $=2 \%$.- $\$ /$ BP spot exchange rate $=\$1.30 / \mathrm{BP}$.- Mean annualized logarithmic return (for $\$ / B P$ exchange rate) $=\mu^{\mathrm{A}}=0$.- Annualized logarithmic
Given the following information:- $\sigma^{\mathrm{A}}=0.25$- $R_{f}=4 \%$- Price on crude oil futures expiring in 120 days $=\$ 50$- European call and put options on crude oil futures, each with exercise price of $\$ 50$ and expiration of 120 days Using the Black OPM Excel program,
Mailin Developers is a real estate development company with a project in the Midwest currently valued at $\$ 20$ million. The company financed the project by borrowing from Commerce Bank. The loan calls for a principal payment of $\$ 10$ million at the end of four years (no-coupon interest).a.
Using Bloomberg's OVME screen, estimate the equilibrium price on a selected call and put spot index option. For information on how to find options from the SECF and how to upload and index options,- For options on spot equity indexes: \(\mathrm{SECF}; select "Equities" from the "Category" dropdown
Using the OVME screen for the options you evaluated in Exercise 1 , evaluate the prices of the options for different index prices. Click the "Scenario" tab and set the axis for option prices and underlying index prices.Exercise 1.Using Bloomberg's OVME screen, estimate the equilibrium price on a
Using Bloomberg's OVME screen, estimate the equilibrium price on a selected call and put futures index. For information on how to find options from the SECF and CTM screens and how to upload the futures options,- To find futures indexes on SECF, click "Index/Stat" from the "Category" dropdown and
Using the OVME screen for the call and put option you evaluated in Exercise 4, evaluate the Greeks for different futures prices and time to expiration by clicking the "Scenario" tab and setting the axis.Exercise 4.sing Bloomberg's OVME screen, estimate the equilibrium price on a selected call and
Create a portfolio of at least two options on the same futures and evaluate the position in terms of the position's OPM value, delta, gamma, and theta. On the OVME screen, click the + icon next to "Deals" to add a new deal, and then click "Add Legs" from the gray "Leg" dropdown. Input information
Using Bloomberg's OV screen, estimate the equilibrium price on a selected call and put currency futures. For information on how to find options from the SECF and CTM screens and how to upload the futures options,- To find currency futures on SECF, click "Currencies" from the "Category" dropdown and
Using Bloomberg's OV screen, estimate the equilibrium price on a selected call and put commodity futures. For information on how to find options from the SECF and CTM screens and how to upload the futures options, - To find commodity options on SECF, click "Commodities" from the "Category" dropdown
Determine the equilibrium price on an equity warrant. To search for warrants, go to the SECF screen. On the screen, click "Equities" from the "Category" dropdown, click the "Warrants" tab, and select type of warrants from the "Type" download. Determine the OPM value of the warrant using the OVME
Assume: binomial process; current annualized spot rate on riskfree bond with maturity of one year of $S_{0}=5 \%$; up and down parameters for period equal in length to one year of $u=1.1$ and $d$ $=1 /1.1$; length of binomial period equal to one year; probability of the spot rate increasing
Assume the following: binomial process; current annualized spot rate on risk-free bond with maturity of 0.25 years of $S_{0}=4 \%$; up and down parameters for period equal in length to 0.5 years of $u$ $=1.1, d=1 /1.1$; length of binomial period 0.5 years (six-month steps); probability of the
Assume:- Binomial process- Current annualized spot rate on risk-free bond with maturity of 0.25 years of $S_{0}=4 \%$- Up and down parameters for period equal in length to 0.5 years of $u=1.1, d=1 / 1.1$- Length of binomial period 0.5 years (six-month steps)- Probability of the spot rate
Given a current one-period spot rate of $S_{0}=10 \%$, upward and downward parameters of $u=1.1$ and $d=0.9091$, and probability of the spot rate increasing in one period of $q=0.5$ :a. Generate a two-period binomial tree of spot rates.b. Using the binomial interest rate tree from Question
Given an ABC convertible bond with $F=\$ 1,000$, maturity of three periods, Conversion Ratio $=10$, current stock price of $\$ 100$, and $u=1.1, d=0.95$, and $q=0.5$ on the stock:a. Calculate the value of the bond using a binomial tree of stock prices. Assume no call on the bond and a
43%;" height="163">a. Calculate the spot rate's average logarithmic return and variance.b. What is the rate's annualized mean and variance?c. Calculate the spot rate's up and down parameters for periods with the following lengths:i. One quarter $(h=$ length in years $=1 / 4)$ii. One month
Given the following:- Current spot $=0.08$- Annualized mean for the spot rate's logarithmic return of 0.022- Annualized variance for the spot rate's logarithmic return of 0.0054- Binomial interest rate tree with monthly steps Determine the values of the following:a. Five-year, $8 \%$
Comment on the arbitrage-free features of valuing a bond using a binomial interest rate tree generated by estimating $u$ and $d$ in terms of mean and variance.
Explain the methodology for estimating a binomial tree using the calibration model. Comment on the arbitrage-free features of this approach.
Given a variability of $\sigma=\sqrt{h V_{e}^{A}}=0.10$ and current one- and two-period spot rates of $S^{m}{ }_{1}=0.07$ and $S^{m}{ }_{2}=0.0804$ :a. Generate a one-period binomial interest rate tree using the calibration model. (Hint: Try $S_{d}=0.08148$.)b. Using the calibrated tree,
Using Bloomberg's OVME screen, determine the equilibrium price on a selected call and put options on a futures contract on a T-Note or T-bond. For information on how to find options from the SECF and CTM screens and how to upload the futures options, For information on how to value options on bond
Create a portfolio of at least two options on the same futures you selected and evaluate the position in terms of the position's OPM value, delta, gamma, and theta. On the OVME screen, click the + icon next to "Deals" to add a new deal, and then click "Add Legs" from the grey "Leg" dropdown.
Using Bloomberg's OVME screen, determine the equilibrium price on a selected call and put option on a Eurodollar futures contract. For information on how to find options from the SECF and CTM screens and how to upload the futures options,
Guide:- To find futures indexes on SECF, click "Fixed Income" from the "Category" dropdown and then click "futr" tab or click "opts." Use OMON on the futures screen to find the futures options.- Select the options from the selected futures' OMON or CALL screen.- Load the option: Option Ticker .-
Find descriptions, recent prices, and other information on a convertible bond. Use SECF, SRCH, or CSCH to search for convertible bonds. Upload the convertible's menu screen (convertible's Ticker ). Examine the price of the convertible and its option value using BVAL: BVAL .
Given the following interest-rate swap:- Fixed-rate payer pays half of the YTM on a T-note of $3.0 \%$- Floating-rate payer pays the LIBOR - Notional principal is $\$ 10$ million - Effective dates are 3/23 and 9/23 for the next three yearsQuestions:a. Determine the net receipts of the
Using a table showing payments and receipts, prove that the following positions are equivalent:a. Floating-rate loan plus fixed-rate payer's position is equivalent to a fixed-rate loan.b. Fixed-rate loan plus floating-rate payer's position is equivalent to a floating-rate loan.c. Floating-rate note
Explain the alternative ways a swap holder could hedge her swap position instead of selling it to a swap bank.
If the fixed rate on a new par value two-year swap were at $3 \%$, how much would a swap dealer pay or charge to assume an existing fixed-payer's position on a $3.5 \% /$ LIBOR generic swap with two years left to maturity and notional principal of $\$ 20$ million? How much would the dealer
If the fixed rate on a new par value two-year swap were at $5 \%$, how much would a swap dealer pay or charge for assuming an existing 5.5\%/LIBOR floating-rate position on a generic swap with two years left to maturity and notional principal of $\$ 20$ million? How much would the dealer pay or
Given a generic five-year par value swap with a fixed rate of $6 \%$, determine the values of the following off-market swap positions using the YTM approach:a. Fixed-rate position on a five-year, $5 \% /$ LIBOR generic swap with $N P=\$ 50$ million.b. Floating-rate position on a five-year \(5
The Beta Chemical Company wants to finance an expansion of one of its production plants by borrowing $\$ 150$ million for five years. Based on its moderate credit ratings, Beta can borrow five-year funds at a 10.5\% fixed rate or at a floating rate equal to LIBOR + 75 bp. Given the choice of
Suppose a company wants to borrow $\$ 100$ million for five years at a fixed-rate. Suppose the company can issue both a five-year, $6 \%$, fixed-rate bond paying coupons on a semiannual basis and a five-year FRN paying LIBOR plus $100 \mathrm{BP}$.a. Explain how the company could create a
Suppose a financial institution wants to finance its three-year $\$ 100$ million floatingrate loans by selling three-year floating-rate notes. Suppose the institution can issue a three-year, $7 \%$, fixed-rate note paying coupons on a semiannual basis and also a threeyear FRN paying LIBOR plus
Suppose a financial institution wants to invest $\$ 100$ million in a three-year fixed-rate note. Suppose the institution can invest in a three-year, $7 \%$, fixed-rate note payingcoupons on a semiannual basis and selling at par and also in a three-year FRN paying LIBOR plus \(100
Suppose a financial institution wants to invest $\$ 100$ million in a three-year floatingrate note. Suppose the institution can invest in a three-year, $7 \%$, fixed-rate note paying coupons on a semiannual basis and selling at par and also in a three-year FRN paying LIBOR plus \(100
Short-Answer Questionsa. Who generally assumes the credit risk in a brokered swap?b. Who assumes the credit risk in a dealer's swap?c. What is one of the problems with brokered swaps that contributed to the growth in the dealer-swap market?d. What does the term warehousing mean?e. What does the
Explain how a company planning to issue four-year, fixed-rate bonds in two years could use a forward swap to lock in the fix rate it will pay on the bonds. Explain how the hedge works at the expiration of the forward contract.
Suppose a speculative hedge fund anticipating higher rates in several years purchased a two-year payer swaption on a three-year 6\%/LIBOR generic swap with semiannual payments and a notional principal of $\$ 20$ million for a price equal to 50 basis points times the NP. Show graphically and in a
Use the Bloomberg SWPM screen to create and analyze a fixed-/floating-rate swap. Tabs to include in your analysis: Main, Resets, Curve, Cashflow, and Scenario.
Use the Bloomberg SWPM screen to create and analyze a swaption on a fixed-/floating-rate swap similar to the one you created in Exercise 1. To create a swaption on SWPM, go to the "Products" tabs and click "Swaption" in Options dropdown. This will bring up the main screen for a swaption. Tabs to
Construct a bond portfolio using PRTU or select a bond portfolio you have already constructed.a. On your MARS screen, create a fixed-payer position on a generic swap. Add your swap to a portfolio you have created. From the red "Add Positions" tab, click "Add to Portfolio" and then select the
The Bloomberg ASW screen allows you to calculate the relative value of a selected bond through the interest rate swap market. Select a dollar-denominated, fixedincome, intermediate-term Treasury or investment-grade bond and use ASW to determine how much money you could save in interest costs by
Given a discount rate of $5 \%$, determine the present value of the payments on a five-year CDS with a spread of $3 \%$ and a $N P$ of $\$ 100$. If the recovery rate on the underlying credit is $30 \%$, what is the probability intensity implied by the spread?
Given an estimated five-year average probability intensity o f0.0375 on a five-year, BB-rated CDS, a recovery rate of $30 \%$, and discount rate of $5 \%$, determine the value and spread on the CDS. Assume $N P=\$ 100$.
The table below shows the historical cumulative probabilities for corporate bonds with quality ratings of B: Cumulative ProbabilitiesCumulative Probabilitiesa. Determine the conditional default probabilities from the cumulative probabilities shown in the table.b. Given your probability
How much would a swap bank pay or require as compensation for assuming the buyer's position on a four-year BBB-rated CDS with a spread of 2.5\% if current four-year BBB-rated CDS are trading at a spread of $2 \%$. Assume the appropriate discount rate is $6 \%, \mathrm{NP}$ is $\$ 100$, and
How much would a swap bank pay or require as compensation for assuming the seller's position on a four-year BBB-rated CDS with a spread of $2.5 \%$ if current four-year BBB-rated CDS were trading at a spread of $2 \%$. Assume the appropriate discount rate is $6 \%, N P$ is $\$ 100$, and the

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Derivatives Markets And Analysis 1st Edition R. Stafford Johnson - Solutions

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