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

question 16

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 caplet 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) 0.000000,0.006649
• B) 0.003525,0.000000
• C) 0.003198,0.001696
• D) 0.000000,0.003325
• E) 0.001763,0.000000

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Definitions:

Task Labor System

A labor system, notably used in plantation agriculture, where enslaved people were assigned specific tasks to complete each day, after which they had some degree of autonomy.

West Africa

A region located in the western part of the African continent, comprising 16 countries and noted for its diverse cultures, languages, and economic activities.

Cotton Belt

describes the southern region of the United States where cotton farming was the dominant agricultural practice before the Civil War, characterized by a high concentration of slave labor.

Enslaved People

Individuals who are forcibly taken or held as property and made to work without rights or freedom.