Determine the payoff value of the swaption

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Reference no: EM131323350

Consider a three-year receiver swaption with an exercise rate of 11.75 percent, in which the underlying swap is a $20 million notional principal four-year swap. The underlying rate is LIBOR.

At the expiration of the swaption, the LIBOR rates are 10 percent (360 days), 10.5 percent (720 days), 10.9 percent (1,080 days), and 11.2 percent (1,440 days). Assume 360 days in a year.

Determine the payoff value of the swaption.

Reference no: EM131323350

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