Question #13 - Reading 31 Valuation of Contingent Claims

Reading: Reading 31 Valuation of Contingent Claims

PDF File: Reading 31 Valuation of Contingent Claims.pdf

Page: 6

Status: Unattempted

Correct Answer: B

Shared Context

- Comment 1 is best described as: A) correct. B) incorrect as long an interest rate floor should be short an interest rate floor. C) incorrect as long an interest rate floor should be long an interest rate cap.

Question

Comment 3 can be best described as:

Answer Choices:

A. correct

B. incorrect as it is describing a receiver swaption, not a payer swaption

C. incorrect as a payer swaption is more valuable if an equivalent swap at the market rate is lower than the strike rate

Explanation

Comment 3 is a correct description of a payer swaption.

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