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Reading 63: Swap Markets and Contracts-LOS g 习题精选

Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 63: Swap Markets and Contracts

LOS g: Identify and calculate the possible payoffs and cash flows of an interest rate swaption.

 

 

The payoff on a receiver swaption is most like that of a:

A)
call option on a coupon bond.
B)
put option on a discount bond.
C)
put option on a coupon bond.


 

The payoff on a receiver swaption is like that of a call option on a bond issued at the exercise date of the swaption, with a coupon equal to the fixed rate of the swap, and a term equal to that of the swap.

Consider a 3-year quarterly-pay bond to be issued in 180 days with a 7% coupon. A 180-day put option on this bond, with an exercise price rate of 7%, has a payoff equal to that of a:

A)
receiver swap.
B)
receiver swaption.
C)
payer swaption.


The payoff on a payer swaption is equivalent to that of a put option on a bond as described in the question.

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Wanda Brunner, CFA, is contemplating adding a swaption to her portfolio. She makes the following two statements about the possible payoffs and cash flows of an interest rate swaption:

Statement 1:

Exercising an in-the-money swaption effectively generates an annuity over the term of the underlying swap.

Statement 2:

A positive payoff to a receiver swaption each quarter is the interest saved by receiving the higher fixed rate.

Which of the following statements are CORRECT?

A)
Only statement 1 is correct.
B)
Only statement 2 is correct.
C)
Both statements are correct.


Exercising an in-the-money swaption effectively generates an annuity over the term of the underlying swap. The amount of each annuity payment is the interest savings that result from paying a rate lower than the market rate under a payer swaption or the extra interest that results from receiving a higher rate under a receiver swaption.

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