Question: 1. (Pricing swaps using term structure model) Consider an n =10-period binomial model for the short-rate, Ti, j. The lattice parameters are: 10,0 = 5%,

1. (Pricing swaps using term structure model) Consider an n =10-period binomial model for the short-rate, Ti, j. The lattice parameters are: 10,0 = 5%, u = 1.1, d = 0.9 and q = 1 - q = 1/2. Compute the initial value of a forward-starting swap that begins at t = 1, with maturity t = 10 and a fixed rate of 4.5%. The first payment then takes place at t = 2 and the final payment takes place att = 11 as we are assuming, as usual, that payments take place in arrears. You should assume a swap notional of 1 million and assume that you receive floating and pay fixed. Submission Guideline: Give your answer rounded to the nearest integer. For example, if you compute the answer to be -220,432.23, submit -220432

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

(Pricing swaps using term structure model) Consider an n = n=10-period binomial model for the short-rate, r_{i,j}ri,j. The lattice parameters are: r_{0,0} = 5\%r0,0=5%, u = 1.1u=1.1, d = 0.9d=0.9 and...

Question 2(Pricing swaptions using term structure model) Consider an n=n=n, equals10-period binomial model for the short-rate, ri,jri,jr, start subscript, i, comma, j, end subscript. The lattice...

Questions 1 and 2 should be answered by building and calibrating a 10-period Black- Derman-Toy model for the short-rate, rij You may assume that the term-structure of interest rates observed in the...

1. Assume b=0.05 is a constant for all ii in the BDT model as we assumed in the video lectures. Calibrate the ai parameters so that the model term-structure matches the market term-structure. Be sure...

Questions 1-6 should be answered by building an n = n = 10-period binomial model for the short-rate, ri,j. The lattice parameters are: r0,0= 5%, u = 1.1, d = 0.9 and q = 1-q =1/2. Question 1 -...

please i need answers to question 2, 4 and 6 Questions 1-6 should be answered by building an n = n = 10-period binomial model for the short-rate, ri,j. The lattice parameters are: r0,0= 5%, u = 1.1,...

building an n =10-period binomial model for the short-rate, r i , j . The lattice parameters are: r 0,0 = 5%, u = 1.1, d = 0.9 and q =1 - q = 1/2. 1) Compute the initial value of a forward- starting...

1. Background: please start by building an n =10-period binomial model for the short-rate, rinj. The lattice parameters are: r0,0 = 5%, u = 1.1, d = 0.9 and q =1-q=1/2. = Compute the price of a...

Questions 1 and 2 should be answered by building and calibrating a 10-period Black-Derman-Toy model for the short-rate, ri,j. You may assume that the term-structure of interest rates observed in the...

1 MATH3075 Mathematical Finance (Normal) Due by 4 pm on Thursday, September 17, 2015 1. [10 marks] Elementary market model. Consider a single-period two-state market model M = (B, S) with the two...

Aldersley Ltd is evaluating the investment in new machinery to manufacture Product A. Machine X is being considered to manufacture Product A. The following table shows the expected production units...

The classified balance sheet and selected income statement data for Quinn, Inc., as of December 31 , 201 2, are presented next. Selected Income Statement Data Gross Profit...

The vertices of AABC are at A(-1,-3), B(2, 3) and C(k + 5,k) Find the value of k if AB is perpendicular to BC

Compute an average mark for the following quiz results. Mark # of Students 0 1 2 3 4 5 6 01034 12 76 8 12 6 2