10. A risk manager needs to break down the more complex callable/puttable structures into simpler components to hedge the products. She is handed a 10 year no-put 1 year Bermudan puttable swap where she receives a fixed rate of 3.50% and pays 6-month LIBOR, both semiannually for 10 years. After 1 year, she can decide if she wants to continue doing that for the remaining term or end the entire contract at that time. If she does not end the contract there, she can do so every 6 months until the final period. (a) Use the following market instruments to re-engineer the structure (no need to use all of them), indicate clearly which sides she needs to do (long/short, payer/receiver swaption, pay/receive fixed on swap): - 1-year swap - 5-year swap - 10-year swap - 1-into-9 European swaption - 1-into-10 European swaption - 1-into-9 Bermudan swaption - 1-into-10 Bermudan swaption (b) Can a Bermudan swaption be replicated by a series of European swaptions? Why or why not? Please explain briefly. 10. A risk manager needs to break down the more complex callable/puttable structures into simpler components to hedge the products. She is handed a 10 year no-put 1 year Bermudan puttable swap where she receives a fixed rate of 3.50% and pays 6-month LIBOR, both semiannually for 10 years. After 1 year, she can decide if she wants to continue doing that for the remaining term or end the entire contract at that time. If she does not end the contract there, she can do so every 6 months until the final period. (a) Use the following market instruments to re-engineer the structure (no need to use all of them), indicate clearly which sides she needs to do (long/short, payer/receiver swaption, pay/receive fixed on swap): - 1-year swap - 5-year swap - 10-year swap - 1-into-9 European swaption - 1-into-10 European swaption - 1-into-9 Bermudan swaption - 1-into-10 Bermudan swaption (b) Can a Bermudan swaption be replicated by a series of European swaptions? Why or why not? Please explain briefly