What are the competing effects in a dispersion trade
What are the competing effects in a dispersion trade?
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The competing effects within a dispersion trade are as follows:• Gamma profits versus time decay upon each of the extended equity options• Gamma losses versus time decay as the latter a source of profit, on the short index options• Across the individual equities, the amount of correlation.
Your firm have just issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%. Describe the amount of first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is at present 7.2%?Solution:
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