Calculate the price of an option

Reference no: EM132180106

Question - Calculate the price of an option that caps the three-month rate, starting in 15 months time, at 15% (quoted with quarterly compounding) on a principal amount of $1,000. The forward interest rate for the period in question is 14% per annum (quoted with quarterly compounding), the 18-month risk-free interest rate (continuously compounded) is 12% per annum, and the volatility of the forward rate is 10% per annum.

Reference no: EM132180106

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