Hi all, suspect I’m missing something obvious but… the most recent afternoon mock paper, derivatives questions (Qs 7-13) I can’t reconcile in my head why when calculating the value of the swap contract in Q7, the present value factors are calculated using the respective PLN & EUR risk free rates, rather than the WIBOR/EURIBOR term structures given below in Exhibit 1?
Any particular reason for it, as in the curriculum books, the values have always been calculated from a term structure …
Soz for any obvious ignorance; the desperate fear is now upon me.
Cheers.
Because it is a fixed for fixed swap. It was semi-annual (not mentioned in exam but in errata). You are just exchanging fixed payments.
IMHO that item set was pretty poorly written (with 2 of the 6 questions containing errors), with comprehension more important to success than actually knowing how to calculate the questions.
ah fair enough, suppose there’s always a term structure mentioned in the CBOK examples because they work in a floating rate somewhere to illustrate alongisde, will remember.
agree about wordings, not helpful at all - the binomial option one was all over the place!
Thanks buddy & good luck!