Caps Floors and Swaptions von Edu Pristine

Dozent des Vortrages Caps Floors and Swaptions

Edu Pristine

Trusted by Fortune 500 Companies and 10,000 Students from 40+ countries across the globe, EduPristine is one of the leading International Training providers for Finance Certifications like FRM®, CFA®, PRM®, Business Analytics, HR Analytics, Financial Modeling, Operational Risk Modeling etc. It was founded by industry professionals who have worked in the area of investment banking and private equity in organizations such as Goldman Sachs, Crisil - A Standard & Poors Company, Standard Chartered and Accenture.

EduPristine has conducted corporate training for various leading corporations and colleges like JP Morgan, Bank of America, Ernst & Young, Accenture, HSBC, IIM C, NUS Singapore etc. EduPristine has conducted more than 500,000 man-hours of quality training in finance.
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... a positive cash flow ensues for the CAP buyer. Payment at time ‘t’ equals = Notional ×Time between each settlement ×Max (Ref rate –Cap, 0) Quotation conventions for caps and floors –Notional:refers to the amount on which payment would be made –Reference rate:The rate which is compared to the strike rate. For instance, 3-month Libor rate. –Strike / exercise rate: ...

... Cap rate 0.55.00%4%1.0%0.00 Because at time 0.25, Ref rate < Cap Rate, no cash flow 0.755.50%4%1.5%0.25 Payment made for difference at time 0.5 ...

... resets ×(Floor –Reference rate) is made at the next reset date. Note that just like Caps, payment is not made on the comparison date, but at the next reset date. If Ref rate ? Floor rate, then no payment is made by the Floor seller to the buyer. A floor can therefore be considered as a series of Put option on the reference rate with Floor rate as the strike rate. Floor as a portfolio of options –A floor maybe used to hedge ...

... sell a floor) which limits the financing cost of floating-rate liabilities for a firm while reducing the cost of the hedge, i.e. the premium paid for the protection. But the drawback is that the firm will not benefit from a lower financing cost if the reference rate falls below the strike rate of the floor –Floors are options used to protect the rate of return of a floating-rate asset. Collars combine a floor with a short cap to reduce the cost of the hedge ...

... an option that gives the buyer the right to enter into a swap, receiving the fixed rate and paying the variable rate. –The payer option on swap is an option that gives the buyer the right to enter into a swap, paying the fixed rate and receiving the variable rate. Quotation conventions for swaptions –The exercise rate or strike rate is the ...

... market swap rate at time T The value of the swaption is LA[S0×N(d1) –SK×(N(d2)], –Where d1= [Ln(S0/SK) + ?2×T/2] / (?×?T) and d2= d1 –??T –S0 is the forward swap rate; ? is the swap rate volatility; Ti is ...

... with a three-month Libor debt for the next 8 years and $5 million principal amount. The swap rate for a three-month Libor swap with 8-year maturity is 5%. The treasurer of this firm fears a rise in interest rates. Instead of entering a three-month Libor swap where he pays the fixed leg and receives the floating leg over a period of 8 years, he prefers to wait for an effective rise in rates. He contracts a payer swaption maturing in 6 months with a 5% strike rate and whose underlying swap has a 7.5-year maturity. ...

... option is called a caplet Answer: Option ‘b’ 2. Which one of the following statements is false? a) Floors are options used to protect the rate of return of a floating-rate asset b) A cap enables the buyer to cap the reference rate associated with a liability c) The payer option on swap is an option that gives the buyer ...

... quoted in terms of implied volatility a) Only Caps b) Only ...