4.19.2005

Q&A: What are the payoffs for a 4-year Cap with a 6% Cap rate...

...a $100 million notional, a quarterly settlement frequency, a 3-month LIBOR reference rate, and the LIBOR for the next 4 quarters as shown below?

Period 1 2 3 4
3-mon LIBOR 5.7% 6% 6.25% 5.7%

A: There is no payoff if the cap rate exceeds 3-month LIBOR. For period 3, $100 mil * (3-month LIBOR - cap rate)/4 = $62,500.

Category: C++ Quant > Derivatives > Swaps

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