Working Paper 283
Bob Jensen at Trinity University

CapIT Corporation Exhibit 1
Reproduced from Page C19 of the Wall Street Journal, June 17, 1999
EURODOLLAR CME Interest Rate Options

\$ Million; pts. of 100%; LIBOR = 5.18% on June 17

 Strike Price Calls-Settle July Calls-Settle August Calls Settle September Puts-Settle July Puts--Settle August Puts--Settle September 9425 3.30 0.10 0.20 0.25 9450 1.00 1.25 1.45 0.40 0.65 0.85 9475 0.10 0.25 0.40 2.00 2.30 9500 0.00 0.05 0.10 4.40 4.45 9525 0.00 6.90 9550 0.00 9.40

Est. vol. 96,655       Tuesday (June 16, 1999) vol. 80,343 calls; 34,949 puts
Op. Int. Tuesday (June 16, 1999) 1,465.850 calls; 851,528 puts

Hypothetical data on option values in future dates after June 17, 1999

The first few questions below refer to Exhibit 1. Be careful of the way Exhibit 1 uses annualized (APR) rates. The LIBOR and strike prices are based upon annual APRs. The premiums are also annualized rates. Thus the LIBOR on June 17 is a 5.18% APR corresponding to a 9,482 basis point spot rate. The strike price corresponding to the 9450 basis points strike price is a 5.50% strike rate. Suppose the cap is perfectly effective under SFAS 133 rules.

Assume the following ex post option spot rates and premiums on an option with a 9,450 (or 5.50%) strike price:

Spot LIBOR is a 5.18% APR on June 17 with a premium of 0.85% for a September put option
Spot LIBOR is a 5.18% APR on June 17 with a premium of 1.45% for a September call option

Spot LIBOR is a 5.10% APR on June 30 with a premium of 0.55% for a September put option
Spot LIBOR is a 5.10% APR on June 30 with a premium of 1.58% for a September call  option

Spot LIBOR is a 5.38% APR on July 31 with a premium of 0.97% for a September put option
Spot LIBOR is a 5.38% APR on July 31 with a premium of 1.10% for a September call  option

Spot LIBOR is a 6.13% APR on Aug. 31 with a premium of 0.89% for a September put option
Spot LIBOR is a 6.13% APR on Aug. 31 with a premium of 0.90% for a September call  option

Spot LIBOR is a 6.50% APR on September 17.