The Numeraire in the Swap Market Model (SMM) Is

question 5

Multiple Choice

The numeraire in the Swap Market Model (SMM) is

• A) The price of the longest maturity bond (i.e., the numeraire under forward measure).
• B) The total of discount functions to the longest swap maturity.
• C) The money market account.
• D) The value of the fixed side of the swap.

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Definitions:

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The reduction in expenses that result from deductions on taxes, essentially the net savings after accounting for tax effects.

Salvage Value

The estimated value at which an asset can be sold at the end of its useful life.

Discount Rate

The interest rate used to discount future cash flows to their present value, crucial in calculating the net present value (NPV) of an investment.

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