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Let $P(t, T)$ be the price at time $t$ of a zero-coupon bond with maturity $T$ and unit face value. Consider the pricing of the caplet with payoff $(L(t_1; t_1, t_2)-K)^+$ at time $t_1$, where $0<t_1 < t_2$ and, for $0\le s \le t_1$, \begin{align*} L(s; t_1, t_2) = \frac{1}{t_2-t_1}\left(\frac{P(s, t_1)}{P(s, t_2)}-1\right) \end{align*} is the forward ...


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Case I Let us consider a derivative with a payoff $H(L(T_{f},T_{S},T_{E}))$ which is paid at time $T_{p}$. Note that: $T_{f}$ - LIBOR fixing date; $T_{S}$ - LIBOR start date; $T_{E}$ - LIBOR maturity date; $T_{p}$ - derivative payment date. Also, $T_{f}=T_{S}=t_{1}$ and $T_{E}=T_{p}=t_{2}$ in the question. In your first case $H(L(T_{f},T_{S},T_{E}))=(L(T_{...


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