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
Comments are closed.