Question: What difference does it make in Problem 30.4 if the swap rate is observed in five years, but the exchange of payments takes place in

What difference does it make in Problem 30.4 if the swap rate is observed in five years, but the exchange of payments takes place in (a) six years, and (b) seven years? Assume that the volatilities of all forward rates are 20%. Assume also that the forward swap rate for the period between years five and seven has a correlation of 0.8 with the forward interest rate between years five and six and a correlation of 0.95 with the forward interest rate between years five and seven.

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