e formula assumes that the pay-o is made at the option’s expiration, but the pay-o of an interest rate
option in this case is delayed by 90 days. us, the value of C needs to be moved back 90 days by using
the forward rate of 10.5%.
C = 0.0050 ×e
–0.105×(90/365)
= 0.0049
e second adjustment is to adjust the annual rate to a periodic rate as:
0.0049 ×
180
360
= 0.0024
is is the price if the notional principal amount was INR 1. If the notional principal is INR 100,000, the
option price would be 0.0024 × 100,000 = INR 240.
CHAPTERSUMMA
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