does the solution for the question actually calculate the present value of the payoff at FRA exiration date? Otherwise I could not understand the term: (1+Lh(m)*(m/360))
Thanks.作者: SpyAli 时间: 2011-7-11 19:25
think of the forward as a commitment to borrow at a set rate
the set rate is 4.48
well at expiry the rate is 4.68
the payments on such "theoretical borrowing" wont be at expiration, they would be 180 days later...
the bottom part of teh equation simply present values the diff to account for time value...
i hoped it helped, 5 AM i gota go to bed, cant do a better explanation for now作者: CPATrader 时间: 2011-7-11 19:25
before i go to bed...
but remmber, these things are often settled when they expire...
so you pay the amount of money that if it was to be invested at current rates it becomes the same as if it was settled a the end of the loan..
