Exercise Solution 9.2
- Applying linear interpolation, as describe in Section 2.4.1, we obtain
[s1]
- Again applying linear interpolation, as describe in Section 2.4.1, we obtain
[s2]
- See first spreadsheet for calculations. Applying quadratic interpolation, as describe in Section 2.4.2, we obtain
[s3]
d, e, f. See second spreadsheet.
- The SOLVER functionality of Microsoft Excel offers an implementation of Newton’s method. See third spreadsheet for computations. The solution is
- strike: x = 1.5595 CAD/USD
- notional = USD 98.78MM
- maturity: y = 0.3399 years