Exercise Solution 9.2

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

    [s1]

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

    [s2]

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

    [s3]

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

 

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