Interest rate caps and floors

Part 1: Respond to the follow discussion:

Don't use plagiarized sources. Get Your Custom Essay on
Interest rate caps and floors
Just from $13/Page
Order Essay
  • • Assess the volatility risk with an investment in a derivative, using an interest rate cap or floor in today’s marketplace. Indicate whether or not you would advise financial institutions to engage in this type of investment. Provide support for your response.  
  • • Assess the effectiveness of using the Black-Scholes model to value cap and floor type investments, indicating how any pitfalls with this method of valuation can be minimized. Provide support for your response. 
  • • Please provide one citation/reference for your initial posting that is not your textbook.  Please do not use Investopedia or Wikipedia.

*** 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 *** 

Grab 16% Discount On This Paper
Pages (550 words)
Approximate price: -

Why Choose Us

Quality Papers

We value our clients. For this reason, we ensure that each paper is written carefully as per the instructions provided by the client. Our editing team also checks all the papers to ensure that they have been completed as per the expectations.

Professional Academic Writers

Over the years, MyEssay.Help has managed to secure the most qualified, reliable and experienced team of writers. The company has also ensured continued training and development of the team members to ensure that it keep up with the rising Academic Trends.

Affordable Prices

Our prices are fairly priced in such a way that ensures affordability. Additionally, you can get a free price quotation by clicking on the "Place Order" button.

On-Time delivery

We pay strict attention on deadlines. For this reason, we ensure that all papers are submitted earlier, even before the deadline indicated by the customer. For this reason, the client can go through the work and review everything.

100% Originality

At MyEssay.help, all papers are plagiarism-free as they are written from scratch. We have taken strict measures to ensure that there is no similarity on all papers and that citations are included as per the standards set.

Customer Support 24/7

Our support team is readily available to provide any guidance/help on our platform at any time of the day/night. Feel free to contact us via the Chat window or support email: support@myessay.help.

Try it now!

Grab 16% Discount On This Paper

We'll send you the first draft for approval by at
Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

MyEssay.help has stood as the world’s leading custom essay writing services providers. Once you enter all the details in the order form under the place order button, the rest is up to us.

Essays

Essay Writing Services

At MyEssay.help, we prioritize on all aspects that bring about a good grade such as impeccable grammar, proper structure, zero-plagiarism and conformance to guidelines. Our experienced team of writers will help you completed your essays and other assignments.

Admissions

Admission and Business Papers

Be assured that you’ll definitely get accepted to the Master’s level program at any university once you enter all the details in the order form. We won’t leave you here; we will also help you secure a good position in your aspired workplace by creating an outstanding resume or portfolio once you place an order.

Editing

Editing and Proofreading

Our skilled editing and writing team will help you restructure you paper, paraphrase, correct grammar and replace plagiarized sections on your paper just on time. The service is geared toward eliminating any mistakes and rather enhancing better quality.

Coursework

Technical papers

We have writers in almost all fields including the most technical fields. You don’t have to worry about the complexity of your paper. Simply enter as much details as possible in the place order section.

                                                                                     Place Order