4.29.2005

Q&A: What's the payoff to the holder of an option...

...expiring in 90 days on 180-day LIBOR, with an exercise rate of 5.5 percent and a notional principal of $10 million, assuming that the 180-day LIBOR is 6 percent on the expiration day?

A: $10,000,000 * (0.06 - 0.055) * (180/360) = $25,000.

Bonus Points

  • The call is in-the-money.
  • By convention this money is not paid at expiration but 180 days later.

Category: C++ Quant-Derivatives-Options

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