Black-Scholes-Merton and Swaptions

CFA Level II Derivatives
#1

Which of the following best represents an interest floor?

A) A put option on an interest rate.

B) A portfolio of call options on an interest rate.

C) A portfolio of put options on an interest rate.

The correct answer is C with explanation A long floor (floor buyer) has the same general expiration-date payoff diagram as that for long interest rate put position.

Can somebody please explain the difference between option A and C. I thought its going to be A. Thanks in advance.

#2

A floor is a collection of floorlets, each of which is an interest rate put.

What does this have to do with B-S-M and swaptions?

1 Like
#3

Thank you.

Because as per Schweser, this question is from BSM topic.

#4

That’s just weird.