Hi all, I have a really silly question. I have come across various expressions for calculating rates/discount factors when t < 1 year.
For example, Libor - 3%, to calculate a 3 Month rate => (1+ 3%) ^ (3/12) = 1.00742.
however I have also come across expressions such as : (1+ 3% * 3/12) = 1.0075
I believe for continuous compounding the first expressions applies. But I have seen both expressions used when no continuous compounding is specifically mentioned. This is from the Scheweser notes.
Any insights?
Thanks!作者: liangfeng 时间: 2011-7-11 20:08
For continuous compounding we would use :- e^3%*3/12
The first one you gave was normal compounding
Second one is without compounding.
Hope this helps.作者: jmh530 时间: 2011-7-11 20:08
thakurpratyush Wrote:
-------------------------------------------------------
> The first one you gave was normal compounding
>
> Second one is without compounding.
>
> Hope this helps.
When to use 1st one & when to use 2nd one ? Is there any tangible/clear rule ?作者: PalacioHill 时间: 2011-7-11 20:08
I think this is the rule:
when it is LIBOR use this:
(1+ 3% * 3/12) = 1.0075
