Exercise Solution 9.2

  1. Applying linear interpolation, as describe in Section 2.4.1, we obtain


  2. Again applying linear interpolation, as describe in Section 2.4.1, we obtain


  3. See first spreadsheet for calculations. Applying quadratic interpolation, as describe in Section 2.4.2, we obtain


d, e, f. See second spreadsheet.
  1. 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