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Exercise 1.2- Swaps Assume the risk-free rates and discount curve calculated in Exercise 1a. You have a swap with the following characteristics: Receive 3% fixed and pay float Fixed and Float pay semi-annual 10-year maturity Notional is $1,000,000 What is the value of the swap? What is the par swap rate? What is the swap value if all risk-free rates are 1% higher? What is the par forward starting swap rate for a swap starting in 5 years for five-years (5x5)? Exercise 1.3 - Binomial Model Consider the following economic inputs: S = 100; K=100; Rf = 3%; o = 20%; T = 2 Year Semi-annual time steps (4 Time Steps) $2 Dividend paid in 6 months if S>100 $2.50 Dividend paid in 18 months if S>100 Calculate the following: European and American Value of a Put option? Options sensitivity to a 10% change in the stock, S = 110? Options sensitivity to a 10% change in the risk-free rate R = 3.30%? Optional: Next change the option type to the following. Put option that is knocked-out if the stock price rises above 130 or if the stock price falls below 70. Calculate the same quantities as above using the binomial model. Exercise 1.2- Swaps Assume the risk-free rates and discount curve calculated in Exercise 1a. You have a swap with the following characteristics: Receive 3% fixed and pay float Fixed and Float pay semi-annual 10-year maturity Notional is $1,000,000 What is the value of the swap? What is the par swap rate? What is the swap value if all risk-free rates are 1% higher? What is the par forward starting swap rate for a swap starting in 5 years for five-years (5x5)? Exercise 1.3 - Binomial Model Consider the following economic inputs: S = 100; K=100; Rf = 3%; o = 20%; T = 2 Year Semi-annual time steps (4 Time Steps) $2 Dividend paid in 6 months if S>100 $2.50 Dividend paid in 18 months if S>100 Calculate the following: European and American Value of a Put option? Options sensitivity to a 10% change in the stock, S = 110? Options sensitivity to a 10% change in the risk-free rate R = 3.30%? Optional: Next change the option type to the following. Put option that is knocked-out if the stock price rises above 130 or if the stock price falls below 70. Calculate the same quantities as above using the binomial model

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