Compute the initial price of a futures contract

Reference no: EM132315246

Term Structure Models -

Questions 1-6 should be answered by building an n = 10-period binomial model for the short-rate, r_i,j. The lattice parameters are: r_0,0 = 5%, u = 1.1, d = 0.9 and q = 1-q =1/2.

Question 1 - Compute the price of a zero-coupon bond (ZCB) that matures at time t=10 and that has face value 100.

Question 2 - Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at time t=4.

Question 3 - Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration of t=4.

Question 4 - Compute the price of an American call option on the same ZCB of the previous three questions. The option has expiration t=6 and strike =80.

Question 5 - Compute the initial value of a forward-starting swap that begins at t=1, with maturity t=10 and a fixed rate of 4.5%. (The first payment then takes place at t=2 and the final payment takes place at t=11 as we are assuming, as usual, that payments take place in arrears.) You should assume a swap notional of 1 million and assume that you receive floating and pay fixed.)

Question 6 - Compute the initial price of a swaption that matures at time t=5 and has a strike of 0. The underlying swap is the same swap as described in the previous question with a notional of 1 million. To be clear, you should assume that if the swaption is exercised at t=5 then the owner of the swaption will receive all cash-flows from the underlying swap from times t=6 to t=11 inclusive. (The swaption strike of 0 should also not be confused with the fixed rate of 4.5% on the underlying swap.)

Reference no: EM132315246

Questions Cloud

How will the basis adjustment be allocated among properties : Assume the LLC has a §754 election in effect. What will be the amount of the basis adjustment under 734(b)? How will the basis adjustment be allocated?

Simulate the running of a formula grand prix championship : FIT9131 - Programming foundations in Java - Monash University - simulate the running of a Formula 9131 Grand Prix championship

Review all payment made to vendors and suppliers : A request vendor statements at year-end for all significant vendors from which the client made purchase during the year.

Is hr management the right career for you : After a thorough review of the video, answer the question, Is HR management the right career for you? If you say yes, provide at least 3 main reasons why.

Compute the initial price of a futures contract : Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration of t=4

What are the names of the occupations : What were two occupations O*NET found that fit your skills, interests, and experience level desired? Provide the details regarding the following.

Evaluate any gaps in the knowledge and skills assessed : The purpose of this assignment is to explore how leadership is formally evaluated in different organizations. In this assignment, examine and analyze.

Define fundamental responsibilities and key characteristics : Define the fundamental responsibilities and key characteristics of Chief Information Officer and Chief Technology Officer within health care organizations

Create a brief audio recording by following directions : Create a brief audio recording by following directions on this template that focuses on two tips that could be used to avoid miscommunication in the medium.

User Account

All Pages