Which of the following is assumed to be lognormal when a swap option is valued?
A) A future bond price
B) A future swap rate
C) A future short-term rate
D) A future bond yield

Question

Quizplus · Accepted Answer

When a swap option is valued, the future swap rate is usually assumed to be lognormal. This is because interest rates typically follow a lognormal distribution, which is a continuous probability distribution of a random variable where the logarithm of the variable is normally distributed.

Which of the Following Is Assumed to Be Lognormal When