What is the value of a European swap option that gives the h
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What is the value of a European swap option that gives the holder the right to enter into a 3-year annual-pay swap in 4
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What is the value of a European swap option that gives the holder the right to enter into a 3-year annual-pay swap in 4 years where a fixed rate of 5% is paid and LIBOR is received? The swap principal is $10 million. Assume that the LIBOR/swap yield curve is used for discounting and is flat at 5% per annum with annual compounding and that the volatility of the swap rate is 20%. Compare your answer with that given by DerivaGem. Now suppose that all swap rates are are 5% and all OIS rates are 4.7%. Use DerivaGem to calculate the LIBOR zero curve and the swap option value.
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