Complete Case details are given below :
Case Name : Locked Tight Storage Facilities
Authors : Kenneth Eades, S. Brooks Marshall
Source : Darden School of Business
Case ID : UV0498
Discipline : Finance
Case Length : 07 pages
Solution Sample availability : YES
Plagiarism : NO (100% Original work)
Description for case is given below :
This case provides an opportunity to introduce and apply the pure-expectations theory of interest rates. It also brings out the fundamentals of option pricing by considering the refinancing option embedded in the long-term mortgage alternative. Because of the refinancing option, the spread charged by the bank for the long-term mortgage is too low, which suggests that an arbitrage opportunity is available by constructing a “homemade” interest-rate swap.
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