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