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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
438 Derivatives and Risk Management
However, two adjustments are needed:
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.
C H A P T E R S U M M A
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Publisher Resources

ISBN: 9781299447547Publisher Website