# Compute the initial price of a swaption that matures at time t=5 and has a strike…

Compute the initial price of a swaption that matures at time t=5
and has a strike of 0. The underlying swap is the same swap as
described in the previous question with a notional of 1 million. To
be clear, you should assume that if the swaption is exercised at
t=5 then the owner of the swaption will receive all cash-flows from
the underlying swap from times t=6 to t=11 inclusive. (The swaption
strike of 0 should also not be confused with the fixed rate of 4.5%
on the underlying swap.)
(should be answered by building an n =10-period binomial model
for the short-rate, ri,j_. The lattice parameters are: r0,0_=5%, u
= 1.1, d = 0.9 and q = 1-q = 1/2.)

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