Suppose that all 12-month LIBOR forward rates are 5% with annual compounding. The OIS zero curve is
Question:
Suppose that all 12-month LIBOR forward rates are 5% with annual compounding. The OIS zero curve is flat at 4.8% with continuous compounding. In a five-year swap, company X pays a fixed rate of 6% and receives LIBOR. The volatility of the two-year swap rate in three years is 20%.
(a) What is the value of the swap?
(b) Use DerivaGem to calculate the value of the swap if company X has the option to cancel after three years.
(c) Use DerivaGem to calculate the value of the swap if the counterparty has the option to cancel after three years.
(d) What is the value of the swap if either side can cancel at the end of three years?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
a A swap where 5 is exchanged for LIBOR is worth zero When 6 is paid the value of the swap is 1e 004...View the full answer
Answered By
Joseph Mwaura
I have been teaching college students in various subjects for 9 years now. Besides, I have been tutoring online with several tutoring companies from 2010 to date. The 9 years of experience as a tutor has enabled me to develop multiple tutoring skills and see thousands of students excel in their education and in life after school which gives me much pleasure. I have assisted students in essay writing and in doing academic research and this has helped me be well versed with the various writing styles such as APA, MLA, Chicago/ Turabian, Harvard. I am always ready to handle work at any hour and in any way as students specify. In my tutoring journey, excellence has always been my guiding standard.
1+ Reviews
10+ Question Solved
Related Book For 
Question Posted:
