Franco comments: “I think six-month call options on the six-month forward rate would probably be the cheapest solution. The price of the European-style option can be evaluated as the present value of the expected terminal option’s payoffs using the risk-adjusted periodic rate. Because Newport has indicated that its goal is to pay a maximum interest rate of 1.25% on the loan, we could also use interest rate put and call options. I believe the binomial model can be used to value interest rate options. Exhibit 1 shows the current interest rate information.”
EXHIBIT 1
| Current six-month Libor | 1.00% |
| Six-month forward rate in six months | 1.15% |
Q. Based on the information shown in Exhibit 1 and using a two-step binomial model to value the current at-the-money interest rate call option, the value of the underlying instrument at Node 0 would most likely be:
- 1.25%.
- 1.15%.
- 1.00%.
Solution
C is correct. When using the two-period binomial model to value interest rate options, the value of the underlying instrument at Node 0 is the spot rate. The spot rate (and the at-the-money strike price) is the current Libor rate of 1.00%.
答案说这句话说估值等于spot rate 是哪个知识点？我不记得了，请解释一下，谢谢！
