Calculate the price of an option that caps the 3-month rate

Reference no: EM131408594

Calculate the price of an option that caps the 3-month rate starting in 18-months' time at 13% (quoted with quarterly compounding) on a principal amount of $1,000. The forward interest rate for the period in question is 12% per annum (quoted with quarterly compounding), the 21 -month risk-free interest rate (continuously compounded) is 11.5% per annum, and the volatility of the forward rate is 12%, per annum.

Reference no: EM131408594

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