Deduce v1 equals v2 when sk equals current forward swap rate

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Reference no: EM131241110

Show that V₁ + f = V₂, where V₁ is the value of a swaption to pay a fixed rate of s_K and receive LIBOR between times T₁and T₂, f is the value of a forward swap to receive a fixed rate of s_K and pay LIBOR between times T₁ and T₂, and V₂ is the value of a swaption to receive a fixed rate of s_K between times T₁ and T₂.

Deduce that V₁ = V₂ when s_K equals the current forward swap rate.

Reference no: EM131241110

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