Question regarding swaptions Suppose that the yield corresponding to \\( 1 \\mathrm{y}, 1.5 \\mathrm{y},...
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Accounting
Question regarding swaptions
Suppose that the yield corresponding to \\( 1 \\mathrm{y}, 1.5 \\mathrm{y}, 2 \\mathrm{y} \\) and \\( 2.5 \\mathrm{y} \\) are \4, \4.5 and \5 respectively. Consider a swaption which gives the holder a right to pay \5 in 18 month swap starting in 1 year's time. The volatilty of swap rate is \20. Payments are made semi-annually and principal is \\( 100 \\). Find the price of the swaption in terms of cumulative normal distribution function
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