Question Details

(Solved) Schulich School of Business York University Derivatives FINE 6800, Section G (MBA) Winter 2017 Instructor: Dr. Melanie Cao (Due: March 8, 2017)


Suppose that the term structure is described in the following table:

maturity 6-month 12-month 18-month 24-monthyield 5% 5.2% 5.4% 5.6%Assume that 6-month LIBOR rate is 5.1%.

ï‚· What is the market fixed rate (annualized, semiannual compounded) for a 2-year interest rate swap with semiannual payments?

ï‚· XYZ entered into such a swap as the fixed-rate payer, with a notional amountof $10 million. Two months later, suppose that the yield curve becomes flat at5% for all maturities and the 6-month LIBOR rate is 5.05%. What is the valueof the swap to XYZ?

ï‚· If the counterpart defaults now, what is the loss to XYZ?

Schulich School of Business York University Derivatives
FINE 6800, Section G (MBA) Winter 2017 Instructor: Dr. Melanie Cao
(Due: March 8, 2017)
Assignment 2: 5 points
1. Suppose that the term structure is described in the following table:
maturity 6-month 12-month 18-month 24-month yield 5% 5.2% 5.4% 5.6% Assume that 6-month LIBOR rate is 5.1%. What is the market fixed rate (annualized, semiannual compounded) for a 2year interest rate swap with semiannual payments? XYZ entered into such a swap as the fixed-rate payer, with a notional amount
of $10 million. Two months later, suppose that the yield curve becomes flat at
5% for all maturities and the 6-month LIBOR rate is 5.05%. What is the value
of the swap to XYZ? If the counterpart defaults now, what is the loss to XYZ? 2.
Using the Bootstrap method to determine the yield curve with the following
information:
Annual Coupon
0.00%
4.00%
4.50%
5.00% Maturity
(years)
1
2
3
4 Bond
Prices
$959.20
$965.15
$946.30
$935.95 3.
A. B. Three European call options on the same stock with the same
maturity are trading at c1 = $1.0, c2 = $1.5, and c3 = $2.0. The
corresponding exercise prices are K1 = 20, K2 = 19, K3 = 16. Is
there an arbitrage opportunity? If so, how can you take advantage
of it (use one contract in your calculation)? Two European put options written on the same stock with a
maturity of one year are trading at p1 = $1.1, p2 = $0.1 The
corresponding exercise prices are K1 = $20 and K2 = $19. The
riskfree interest rate is 1% per annual. Is there an arbitrage
opportunity? If so, how can you take advantage of it (use one
contract in your calculation)? 4.
Show the Put-Call Parity Conditions for European Options whose underlying
asset pays continuous dividends. That is,
c p Se qT Ke rT where q is the continuous dividend yield. 5.
The spot price for Intel stock is $90. There are calls and puts traded on Intel stock
with a strike price $90 and maturity 6 months. The call price is $2.25 and the put is $0.99.
The riskfree rate (continuously compounded) is 5%. Is any arbitrage opportunity? If so,
how can you take advantage?

 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Sep 05, 2019

PRICE: $18

Solution~000200116352.zip (25.37 KB)

Buy this answer for only: $18

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Sep 05, 2019

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

NEW ASSIGNMENT HELP?

Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN YOUR SET DEADLINE.

Order Now