Question

Today you observe the following NYMEX Crude Oil ('CL') futures prices, and discount factors associated with each payment date:

102.46	0.99609
101.63	0.991542
100.66	0.987064
99.65	0.982657
98.55	0.978324
97.53	0.974064
96.51	0.969733
95.61	0.965604
94.80	0.961544
93.91	0.957537
92.81	0.953163
92.09	0.949191
91.32	0.945273
90.67	0.941478
90.00	0.937832
89.31	0.93414
88.73	0.930545
88.08	0.926918
87.65	0.923291
87.14	0.919315
86.83	0.915713
86 .25	0.912119
85.75	0.908534
85.30	0.904718

Explain how you would calculate the fixed price of a swap from a strip of floating futures prices and discount factors associated with each payment date. What is the value of the swap at the time of entering the contract? (Please use your own language and no calculation is needed.)

Explain how you would value a swap that is the exchange of a strip of floating futures prices for a given fixed futures price. (Please use your own language and no calculation is needed.)

Determine the fixed price in a 12 month swap with a floating price based on the NYMEX CL futures price, and payment dates corresponding to first 12 discount factors in the table.

Determine the fixed price in a 24 month CL swap based on these futures prices.

Value a long position in 24 month CL swap with a fixed price of $95.00/bbl and a notional quantity of 10,000 bbl (i.e., 10 NYMEX contracts/month). Discuss why the value of this swap is different from zero.

Answer 1

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