question 94 test 3 book 6

based on the results from reichman’s binomial int rate model, the value of a 2 year , \$30 million european put option on libor with a floor strike price of 6 % is closest A. 185 k b. 195 k c. 270 k d. 375 k info given: Reichmann uses a binomial int rate model to value 1 year and 2 year 6 % floors on 1-year libor, both based on 30 mill principal value with annual payments. he values the 1 year floor at 90 k and the two year floor at 285 k.

I’m sure I got this one wrong… 2 year Floor = 2 put options (1 year and 2 year) therefore 2 year put = 2 year floor - 1 year floor = 295-90 =

you got it right i just could not understand the answer given.

Just noticed I posted this with a typo the last line should have read = 285-90 = 195

i got this question wrong also… i still dont get it

i think i gotit… they asked for the value of just the 2 yr put… i added them as 285 + 90 = 375… this would be the value of the 2 year floor… they want the value of the put itselff got it now