FIN 3410 Lecture Notes - Lecture 6: Interest Rate Swap, Alpha Beta, Swap Rate

• School: University of Denver
• Department: Finance
• Course: FIN 3410
• Professor: Khindanova Irina

Document Summary

E = sh. 6800 / sf exercise (strike) price. R$ = 3. 5% annualized 6m rate: t = 6 months = 6m/12m = 0. 5 year. D1 = [ln(0. 6950 / 0. 6800) + 0. 5*(0. 142)^2*(0. 5)] / 0. 142*(sqrt 0. 5) = . 2675: d1 = 0. 27. Ce: d2 = 0. 17, n(0. 27) = 0. 6064, n(0. 17) = 0. 5675. Pe: ce = sh. 349 / sf or 3. 49 cents/sf, n(-0. 27) = 0. 3936, n(-0. 17) = 0. 4325. Ce = $/sf [(0. 6950 * 0. 6064) (0. 6800 * 0. 5675)] * e^(-0. 035*0. 5) Pe = $/sf [(0. 6800 * 0. 4325) (0. 6950 * 0. 3936)] * e^(-0. 035*0. 5: pe = sh. 0202 / sf or 2. 02 cents/sf. E^x should be close to 1. 0 cents/sf. Today you pay 3. 49 cents for the right to buy 1 sf in 6m @ e = 68. Today you pay 2. 02 cents for the right to buy 1 sf in 6m @ e = 68 cents/sf. Qsd = : diff(fixed) = 12. 0% - 10. 5% = 1. 5, diff(floating) = libor + 1% - libor = 1%