Question

Suppose that a swap specifies that a fixed rate is exchanged for twice the LIBOR rate. Can the swap be valued using the "assume forward rates are realized" rule?

   Suppose that a swap specifies that a fixed rate is exchanged for twice the LIBOR rate. Can the swap be valued using the "assume forward rates are realized" rule?

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 34, Problem 2

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The "assume forward rates are realized" rule assumes that the forward rates implied by the yield curve will actually occur in the future. This means that the fixed rate specified in the swap will be realized. Show more…

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Suppose that a swap specifies that a fixed rate is exchanged for twice the LIBOR rate. Can the swap be valued using the "assume forward rates are realized" rule?

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