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Use the Fact That the Pseudo-Probability of Default at Time

Question 21

Multiple Choice

Use the fact that the pseudo-probability of default at time zero is (1/ 2) to answer the questions that follow. -Consider a floorlet with maturity time 1 and strike price 0.035.What are the payoffs to the option at time 1 in the up and down nodes? A) 0.0307,0.0402 B) 0.0042,0.0000 C) 0.0354,0.0056 D) 0.0050,0.0050 E) 0.0000,0.0050 Use the fact that the pseudo-probability of default at time zero is (1/ 2) to answer the questions that follow.
-Consider a floorlet with maturity time 1 and strike price 0.035.What are the payoffs to the option at time 1 in the up and down nodes?


A) 0.0307,0.0402
B) 0.0042,0.0000
C) 0.0354,0.0056
D) 0.0050,0.0050
E) 0.0000,0.0050

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