a) Using Smith's multiplier (1991) applies to Black's (1976) method to calculate the price of a Payer
Fantastic news! We've Found the answer you've been seeking!
Question:
a) Using Smith's multiplier (1991) applies to Black's (1976) method to calculate the price of a Payer Swaption knowing the following information:
- A 2-year Payer Swaption written on a 4-year Swap
- Half-yearly composition
- Swap forward rate starting in 2 years and ending in 6 years: 8.9%
- Exercise rate: 7.5%
- Risk free rate: 2.59%
- The volatility of the forward sawp per year: 24%
- Swap principal: $ 2,000,000
b) Could we use a similar method to calculate a call on an electricity swap. To explain.
Expert Answer:
Posted Date:
