Futures and options Homework_Ch 7

Year 0.5 1 2 3
SWAP / LIBOR 1.20% 1.50% 2.00% 2.20%

Q1. Derive the zero rate on 0.5, 1, 1.5, 2, 2.5, 3, 3.5, 4, 4.5, 5, 5.5, 6 year.

swap rate / interest received

Year zero rate nominal principal
LIBOR every half year

0.5 1.1964% 100 1.20% 0.6

1.0 1.4955% 100 1.50% 0.75
1.5 1.7454% 100 1.75% 0.875
2.0 1.9964% 100 2.00% 1
2.5 2.0965% 100 2.10% 1.05
3.0 2.1973% 100 2.20% 1.1
3.5 2.2473% 100 2.25% 1.125
4.0 2.2978% 100 2.30% 1.15
4.5 2.3486% 100 2.35% 1.175
5.0 2.3998% 100 2.40% 1.2

Q2. Derive the 6-month forward LIBOR maturing at 0.5, 1, 1.5, 2, 2.5, 3, 3.5, 4, 4.5, 5, 5.5, 6 year.

FRA
FRA matures at corresponding 6-month forward LIBOR 6-month forward LIBOR
determining at year 0 determining at year 0
Year to the period (continuous compounding) (semiannually compounding)
between year
0 0-0.5 1.1964% 1.2000%
0.5 0.5-1.0 1.7946% 1.8027%
1.0 1.0-1.5 2.2453% 2.2579%
1.5 1.5-2.0 2.7494% 2.7684%
2.0 2.0-2.5 2.4968% 2.5125%
2.5 2.5-3.0 2.7011% 2.7195%
3.0 3.0-3.5 2.5474% 2.5637%
3.5 3.5-4.0 2.6509% 2.6685%
4.0 4.0-4.5 2.7553% 2.7744%
4.5 4.5-5.0 2.8606% 2.8812%

Q3. Suppose the 5-year swap with nominal principal $100 requires fixed cash flows received at 2.4% and floati
every half year. Calculate the value of FRAs underlying the swap.
 6-month forward
LIBOR
determining at
Year 5-year swap rate Cash inflow zero rate
year 0
(semiannually
compounding)
0.5 2.40% 1.2 1.20% 1.2000%
1.0 2.40% 1.2 1.50% 1.8027%
1.5 2.40% 1.2 1.75% 2.2579%
2.0 2.40% 1.2 2.00% 2.7684%
2.5 2.40% 1.2 2.10% 2.5125%
3.0 2.40% 1.2 2.20% 2.7195%
3.5 2.40% 1.2 2.25% 2.5637%
4.0 2.40% 1.2 2.30% 2.6685%
4.5 2.40% 1.2 2.35% 2.7744%
5.0 2.40% 101.2 2.40% 2.8812%
 會計四 B03702105 謝文瑜

4 5
2.30% 2.40%

value of the
bond

100
100
100
100
100
100
100
100
100
100

3.5, 4, 4.5, 5, 5.5, 6 year.

-month forward LIBOR

determining at year 0
miannually compounding)

1.2000%
1.8027%
2.2579%
2.7684%
2.5125%
2.7195%
2.5637%
2.6685%
2.7744%
2.8812%

cash flows received at 2.4% and floating cash flows paid at LIBOR

Present value of F
0.7000
0.6000
 Present value of F
Cash outflow Net cashflow
discounting Present 0.7000
factor value of FRA
0.6000
0.60 0.60 0.994036 0.5964 0.5000
0.90 0.30 0.985156 0.2942 0.4000
1.13 0.07 0.974158 0.0692 0.3000
1.38 -0.18 0.960858 -0.1770 0.2000
1.26 -0.06 0.948937 -0.0534 0.1000
1.36 -0.16 0.936207 -0.1495 0.0000
1.28 -0.08 0.924358 -0.0757 0.5 1.0 1.5 2.0 2.5 3.0
-0.1000
1.33 -0.13 0.912187 -0.1225
-0.2000
1.39 -0.19 0.899707 -0.1684
101.44 -0.24 0.886930 -0.2134 -0.3000
Present value of FRA
 Present value of FRA

0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0