Hello everyone.
I have some troubles in understanding the non-arbitrage when you hold the following positions:
-
long swap payer vs Libor 1M
-
long cancellable swap receiver vs Libor 1M
-
short cancellable swap payer vs Libor 1M.
Intuitively the total position price (in % p.a.) must be equal to current Libor 1M. But I can not prove it… Does anyone knows the exact rule of how the combination of two opposite callable swaps can be evaluated to be sure the total position is non-arbitrage?
Many thanks in advance!