Interest rate caps and floors
Part 1: Respond to the follow discussion:
*** 100 + WORDS ***
Part 2: Respond the following classmate’s discussion:
“Interest rate caps and floors are options like contracts, which are customized and negotiated by two parties. Caps and floors are based on interest rates and have multiple settlement dates. An investment in a derivative using an interest rate cap or floor requires the buyer to pay a premium to purchase the option, so the buyer faces some form of credit risk. An interest rate cap protects the buyer from interest rates rising above the strike rate. Floors set a minimum interest rate payment because if interest rates fall below the strike rate, the floor holder is protected. In assessing the volatility risk with an investment in a derivative using an interest rate cap or floor in today’s marketplace, because of the high volatility with an investment in a derivative, having some form of protection is an excellent way to hedge one’s investment. Still, with all investments and markets, there are no guarantees or certainty. As an investor, I would want to use these techniques to limit exposure to changes in market interest rates. I believe it’s a good idea.
Black-Scholes is a pricing model used to determine the fair price or theoretical value for a call or a put option. The Black-Scholes pricing model is largely used by options traders who buy options that are priced under the formula calculated value and sell options that are priced higher than the Black-Scholes computed value. The Black-Scholes model is useful because it is like the value of interest-rate cap/floor investments. This model uses factors and formulas that are based on assumed variables but may not translate to real-world marketplace scenarios. Factors will change throughout the market cycle, and they will never be predictable, which is one flaw with using this model. To minimize pitfalls with this method, investors must monitor market volatility changes, and other market developments. Overall, the Black-Sholes pricing model is another investment technique that is effective and accurate.”
*** 40+ WORDS ***
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more