Interest rate options (2)

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  1. Avatar of sehrikhan sehrikhan says:
    April 24, 2013 at 8:52 pm

    Sorry, but there is one more confusion.
    How to find strike/exercise price in Interest option?
    Will it be 100 – (current libor)
    Or
    It will be 100 – (maximum borrowing rate borrower is ready to pay)

    In examples we took exercise price as 94.25 (100-5.75)
    But in December 2008 question of PHOBUS CO. exercise price is not 100-6.6.

  2. Avatar of sehrikhan sehrikhan says:
    April 23, 2013 at 12:03 am

    I’m a bit confused. In last lecture we estimated future price by subtracting future interest rate from 100, that was 85(100-15).
    Why don’t we do the same in this question? Why can’t we calculate future price by subtracting LIBOR of 6.5% from 100 to find the future price.
    I mix both the methods. Kindly tell me when to use which one.
    Thank you.

  3. Avatar of azinbu azinbu says:
    November 18, 2012 at 8:28 am

    Hi thanks for such a clear lectures! but i have one question
    As the cost of selling additional contract is less than benefit from this contract on 18 September, why should we limit the number of contract to 30?
    Is it becouse we take this desicion on 13th of August?

  4. Avatar of zains zains says:
    November 13, 2012 at 11:08 am

    arent there lectures on forex swaps and interest rate swaps?

  5. Avatar of htung00 htung00 says:
    October 1, 2012 at 4:17 am

    For example 7 of this chapter it asks to how Agne could use a collar to hedge.

    How is the hedge effectivness calculated if we’ve sold september call options that are exerciseable upto September 30 and our own transactions end on September 18.

    Is the hedge efficieny and effective interest rate only calcuable until after September 30 when the options expire?

    • Avatar of johnmoffat johnmoffat says:
      October 1, 2012 at 3:28 pm

      @htung00, If the options are American style, then they can be exercised at any time up to the end of the relevant month. If they are European style then they can only be exercised at the end of the month (but they could be sold earlier at whatever the price happened to be on the date of sale).

      • Avatar of htung00 htung00 says:
        October 1, 2012 at 3:41 pm

        @johnmoffat, in example 7 we bought put options and sold call options to create a collar. With the put options we can sell them anytime, but my problem is with the call options we sold.

        They once sold we have no control of when it is exercised we where able to calculte the profit from selling the put options on 18 sept but we still wouldn’t know the complete effect of the call options as there is still oppurtunity for loss until sept 30

  6. Avatar of bowe bowe says:
    April 27, 2012 at 5:31 am

    Very helpful. Thanks a lot.

  7. Avatar of accaforall accaforall says:
    February 25, 2012 at 8:33 am

    Thanks

  8. Avatar of mrxamag mrxamag says:
    November 26, 2011 at 11:44 am

    RESPECT O.T.

  9. Avatar of sushilp sushilp says:
    November 23, 2011 at 11:11 am

    lectures on int rate risk mgmt were very helpful to me cuz i had no access to physical tutor in town. Thanks OT.

    I’ve a particular question on this Int rate option (2) lecture. In the end, lecturer says its hard to decide amongs strike prices 94.25 and 94.50. I understood the calculations but what’s the logic in avoiding selecting the best strike price. Can anyone tell me?

  10. Avatar of raed68 raed68 says:
    June 17, 2011 at 9:49 am

    It stops at the minute 7.27

  11. Avatar of goodnewskydzramedo goodnewskydzramedo says:
    May 17, 2011 at 5:46 pm

    i actually now get the reasoning behind futures and options. i am pretty sure it would be one of my questions to answer should it show up in the exams

    I am predicting international investment appraisal to be there as it’s been quite sometime now since it’s been examined. Any tips

  12. Avatar of wedson wedson says:
    May 16, 2011 at 3:36 pm

    this was an eye opener to me on the points i was missing especialy on whether to buy/sell futures & option contracts

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