How important is it to memorize the formula to calculate FRA prices? Its killing me.
- LRM作者: scarecrow 时间: 2011-7-11 19:28
Not sure what study program you are using, but Stalla has a nice way of breaking it down to a much easier formula to memorize.作者: tikfed 时间: 2011-7-11 19:28
do not have to memorize it. just understand it.
All problems in fixed income/derivatives are just discounting and compounding.
what you need to do is idetify are :
which point of time do you have to discount to
which discount rate you should use
which value(future? present?) you should use
the rest is just multiple a (1+x)^t, or divide by it.作者: lucasg85 时间: 2011-7-11 19:28
I ignore the value formula and base everything on the price formula, which is easy: take the long rate divide it by the short rate, then minus one, then annualize it. Done. The value of the FRA is basically a difference between two prices, calculated as above.
