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hello sir, hope you’re fine.
my question is regarding lurgshall co. compared with other questions of the same kind.
when asked to find the effective rate of using options on futures, and we compute it using two situations — when libor +0.6% and libor -0.6%, whereas, here they have only computed for one situation, i.e., when libor+0.6%. I understand that the libor increase or decrease has no impact on the options part of it, but the net cost would vary and therefore its effective rate. I want to know why they have taken only libor +0.6% situation and ignored libor -0.6%?thank you for your assistance, sir!
The question says that LIBOR is expected to rise by 0.6% and it is therefore only this rise that they are considering hedging against.
Other questions state that the rate may increase or decrease and therefore in those questions we consider both.
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