. Consider a contract that caps the Interest Rate on 3,000,000 at 5.5% per annum (with...

 

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. Consider a contract that caps the Interest Rate on €3,000,000 at 5.5% per annum (with quarterly compounding) for 3-months starting in 1 year. This is a caplet and could be one element of a cap. The Interest Rate yield curve is flat at 4.8% per annum with quarterly compounding, and the volatility of the 3-month forward rate underlying the caplet is 17%. The continuously compounded zero-rate for all maturities is 4.0%. Calculate the price of the caplet. . Consider a contract that caps the Interest Rate on €3,000,000 at 5.5% per annum (with quarterly compounding) for 3-months starting in 1 year. This is a caplet and could be one element of a cap. The Interest Rate yield curve is flat at 4.8% per annum with quarterly compounding, and the volatility of the 3-month forward rate underlying the caplet is 17%. The continuously compounded zero-rate for all maturities is 4.0%. Calculate the price of the caplet.

Answer rating: 100% (QA)

Here are the steps to price this caplet 1 Notional amount 3000000 2 Interest rate cap 55 ... View the full answer