(a) Consider a payer swap and calculate the price of a two-year European swaption, which...
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(a) Consider a payer swap and calculate the price of a two-year European swaption, which exercises into a new three-year payer swap with principal $100. The exercise price of the swaption is 10%, the probability of the up state is 30%
(b) Consider a receiver swap and calculate the price of a two-year European swaption, which exercises into a new three-year payer swap with principal $100. The exercise price of the swaption is 10%, the probability of the up state is 30%
t=0
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