B
Bheema
Member
Hi
In Assgt X3.5ii) one has to employ Black's formula to value a floorlet. For the formula, I need the forward volatility of the 3 mth LIBOR but the question has only provided me with a value for the spot rate volatility. Is it logical to assume that they are the same or is there a formula to convert it? I would be really surprised if they are the same, particularly since they do not have a linear relationship. Any assistance is much appreciated!
In Assgt X3.5ii) one has to employ Black's formula to value a floorlet. For the formula, I need the forward volatility of the 3 mth LIBOR but the question has only provided me with a value for the spot rate volatility. Is it logical to assume that they are the same or is there a formula to convert it? I would be really surprised if they are the same, particularly since they do not have a linear relationship. Any assistance is much appreciated!