硬件cfrm年春季作业31题共100分截止时间为太.pdfVIP

CFRM 548, Spring 2014 #3 (1 question, 100 points total) Due by 12:30pm PST Wednesday, April 23 (class time) Please put your name at the top of each page of your work. Show all work; no credit will be given for answers without ex nations. For each question, ce a box around your final answer. lude relevant derivations, figures/graphical output, and code into a single PDF file for your submission. Name the file as Lastname Firstname HW x where “x” is number of the assignment. If you use R code posted on the Moodle site, please cite this in your submission. A caplet is a derivative instrument in which the long position receives a payoff at time T + δ if i the floating reference interest rate exceeds a fixed cap rate at time Ti. The payoff is equal to the differenc ween the floating and fixed rate multiplied by the year fraction δand the notional amount, N . See Glasserman, Appendix C.2 for more details. To be systematic, let’s def he following: • N : notional pr ipal • δ: duration of the caplet • K: cap rate (assumed to be simply compounded) • L(t; T, T + δ): simply compounded forward LIBOR rate observed at time t for borrow- ing/lendin er [ T, T + δ]. The duration of the borrowing/lending period, δ, is suppressed with the understanding that it is fixed and the same for all LIBOR rates considered. Consider a caplet in effect over [T , T + δ]. If the floating reference ra (T , T ) exceeds the cap i i