Calculate In arrear FRA and also a three period delayed settlement FRA

10.50%
52% Up
48% Down
14.95%
13.47%
12% 11.60%
10.50% 10.17%
8.74% 8.35%
6.96%
5.20%

0.52^3*(k-14.95)+2*0.52^2*0.48*(k-11.6)+2*0.52*0.48^2*(k-8.35)+0.48^3*(k-5.20) = 0

0.140608 -0.021021 0.140608

0.129792 -0.030112 0.259584
0.119808 -0.020008 0.239616
0.110592 -0.005751 0.110592
-0.076891 0.7504
FRA in arrear 10.2467%

0.52^3*(k-14.95)+2*0.52^2*0.48*(k-11.6)+2*0.52*0.48^2*(k-8.35)+0.48^3*(k-5.20) = 0

(0.52^3*(k-1 0.140608 -0.021021 0.140608 -0.018287 0.122321 discounting the cash flows
(2*0.52^2*0 0.129792 -0.030112 0.259584 -0.026982 0.232602
(2*0.52*0.4 0.119808 -0.020008 0.239616 -0.018466 0.22115
(0.48^3*(k-5 0.110592 -0.005751 0.110592 -0.005467 0.105125
-0.076891 0.7504 -0.069201 0.681199

FRA 3 period Delayed Settlement 10.1588%

Finding discount Factor

Term Structure Notional Pr 5000000

after 3 months
TTM Rate Discount faFixed Rate TTM Rate
6M 8.25% 0.960384 3M 8.10%
12M 8.40% 0.922509 9M 8.20%
18M 8.50% 0.886918 8.25%
24M 8.20% 0.859107 8.10%
30M 7.80% 0.83682 7.90%
 36M 7.50% 0.816327 7.60%

C/2*0.9604 + c/2*0.9225 + C/2* 0.8869 + c/2* 0.8591 + C/2*0.8368 + C/2 * 0.8163 C/2*0.9802 + C/2*0.9421 +

918367.346938776 864350.7
5.28206448234628 5.380786
C/2 173865.228265983 C/2 160636.5
0.034773045653197 0.032127
6.95% 6.43%

FIXED TO FIXED SWAP

USD Libor GBP Libor Discunt Rate
6 2.50% 3.30% 0.987654 0.983768
12 2.75% 3.50% 0.973236 0.966184
18 2.60% 3.40% 0.962464 0.951475
24 2.85% 3.75% 0.946074 0.930233
3.869428 3.831659

FRA
C/2*0.9877 + C/2* 0.9732 + C/2* 0.9625 + C/2* 0.9461 + 1*0.9461 = 1

3.8692 * C/2 + 0.9461 = 1

0.053926206244087
2.79%

INTEREST RATE SWAP 25 Mn Euros

BANK A 6% BANK B Payments to be made

BANK B 6M LIBOR BANK A Determined in Advance paid in Arrear
Act/ 360
15-May-08 5.60% entered on
COUPON DALIBOR
15-Nov-08 5.40% first payment
15-May-09 5%
15-Nov-09 5.80%
15-May-10 6.20% last payment

Date Days Interest @ Paid by BA Interest RaPAID by B A-B

15-May-08 6% 5.60%
15-Nov-08 184 6% 0.766667 5.40% 0.715556 0.05111111111
15-May-09 181 6% 0.754167 5% 0.67875 0.07541666667
 15-Nov-09 184 6% 0.766667 5.80% 0.638889 0.12777777778
15-May-10 181 6% 0.754167 6.20% 0.729028 0.02513888889
TOTAL 3.041667 2.762222 0.27944444444

months LIBOR Discount Rate

6 5.80% 0.971817
12 5.40% 0.948767
18 5.20% 0.927644
24 5.50% 0.900901
3.749129
100 Mn $

C/2 * 0.9718 + C/2 * 0.9487 + C/2 * 0.0276 + C/2 * 0.9009 + 0.9009 * 100 = 100

3.7491 *C/2 + 90.09 = 100

9.90990990990991
5.29 Coupon

After 3 mon LIBOR Coupon

3 5.40% 0.948767 2.68 0.98668
9 5.20% 0.865052 2.75 0.962464
15 5% 0.8 2.81 0.941176
21 5.20% 0.733138 2.89 0.91659
3.346956 3.80691

Coupon for 2.64500 Coupon * d 10.07

Principal - 8.340972
sum of all 101.73 Floating Rate
102.90
Fixed Rate 101.529

Black Scholes

St 100
Ex 90
r 8%
Sd 20%
T-t 0.5
d1 1.09856474150288
d2 0.957143385265568
Nd1 0.86402101802039
Nd2 0.806211827681246
Ct= 14.9947441184854
GARMAN KOHLHAGEN MODEL
St 135
Ex 150 D1 -0.60359
rd 8% ND1 0.273058
rf 6% D2 -0.75
sd 20% ND2 0.228132
T-t 0.50

GARMAN KOHLHAGEN MODEL

Ct= St*E^(-rf(T-t)*Nd1 + X*E^(-r*(T-t)*ND2

2.8953
Binomial Model

p=((rd/rf)-d)/(u-d)
perios 2
St 100
u&d 20%
Ex 100
Rd 10.00%
Rf 3.50% Payoff = X-St

144 44
120
100 96 0
80
64 0

p 0.75
1-p 0.25

Ct 9.988393
 16.45%

13.06%

9.76%

6.57%

3.46%

discounting the cash flows by one period rate

Discount factors
0.980152
0.942063
0.906516
0.875848
0.849077
 0.82713

C/2*0.9802 + C/2*0.9421 + C/2* 0,9065 + C/2*0.8758 + C/2* 8491 + C/2 * 0.8271 + 5000000*0.8271 = 5000000

C/2 * 0.9837 + C/2 * 0.9662 + C/2 * 0.9514 + C/2 * 0.9302 + 1* 0.9302 = 1

3.8316 *C/2 + 0.9302 = 1

0.069767
3.64%

May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
perios 2
St 100
u&d 20% 120% 80%
Ex 100
Rd 10% 110%
Rf

p= (rf-d)/(u-d)

p 0.75
1-p 0.25

cdd 1.136364
cuu 20.45455
cud 3.099174
cu 14.65064
cd 2.371337

c0 10.52801