Query on X5.4(iii)

Discussion in 'SP6' started by Gareth, Feb 19, 2006.

  1. Gareth

    Gareth Member

    in valuing the caplet using Black's model, the solution uses F_K = 0.055, which is the observed LIBOR rate at time t=1 1/4.

    Surely this cannot be used to value the caplet since it is not known beforehand???
     

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