550_445_2010 TA 02 - 550.445 Modeling and Analysis of...

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Unformatted text preview: 550.445 Modeling and Analysis of Securities and Financial Markets II, Spring 2010 TA Section 02 Peter C.L. Lin peter.lin@jhu.edu 1 Homework Review 28.22 The quoted futures price corresponds to a forward rate is 8% per annum with quarterly compounding and actual / 360. The parameters for Blacks model are therefore: F k = . 08, K = . 08, R = . 075, k = . 15, t k = . 15, and P (0 , t k + 1 ) = e- . 075 1 = . 9277 d 1 = . 5 . 15 2 . 75 . 15 . 75 = . 065 d 2 =- . 5 . 15 2 . 75 . 15 . 75 =- . 065 and the call price, c , is given by c = . 25 1000 . 9277[0 . 08 N (0 . 065)- . 08 N (- . 065)] = . 96 . 28.25 We choose the third worksheet of DerivaGem and choose Swap Option as the Underlying Type. We enter 100 as the Principal, 2 as the Start (Years), 7 as the End (Years), 6% as the Swap Rate, and Semiannual as the Settlement Frequency. We also enter the zero curve information. We choose Black-European as the pricing model, enter 15% as the Volatility and check the Pay Fixed button. We do not check the Imply Breakeven Rate and Imply Volatility boxes. The value of the swap option is 4 . 606....
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550_445_2010 TA 02 - 550.445 Modeling and Analysis of...

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