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Pricing Swaps and Options

HardFinance & Accounting00:00
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Your question is Pricing Swaps and Options. Take a moment with it on the right.

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Problem

How to price a swap/option? What does Brownian Motion mean? What is the payoff of each spread?

Explain the valuation framework for an interest-rate swap and a vanilla option, define Brownian motion in the context of risk-neutral pricing, and derive the payoff of common vertical option spreads. State the market inputs required for a numerical answer. No underlying, strike, maturity, volatility, yield curve, or option premium is provided, so do not invent a transaction or quote.