I was reading SS 16, Reading 58 (no worries I just got started and thought I would start from behind) and was comparing how the price the value of a Forward before expiration (example a 1X4 Forward , and its value for USD 10’000 notional amount has to be calculated, i.e. 25 days after initiation but before expiration).
In Schweser they use a different method then in the CFA Books and I am little confused which one should I learn.
While in Schweser they price a new Forward rate, in CFAI they use this Formula:
(1/ discount rate for number of days) - 1 + (forward rate from contract)/ (discount rate)
I know i dont’t precisely write which example I am talking about but - maybe somebody can help me or tell me the logic that is used in the CFA formula.
Thank you!作者: Flok 时间: 2013-4-10 17:50
yes, i also think the schweser formula is more logic. but i tried to calculate the example 4, book page 37 and for 4c i calculate the following:
FRA (180)= 6.19%
( 1+ (0.0595 *(190/360))/ (1+ ( 0.0545* (10/360)) = 1.0299 which equals a annual rate of 5.97%. Because we are doing this for 180days I calcualte the following
0.5*0.0597 - 0.5*0.0619 = -0.0011.
Whichs is the same result as CFAI does. But following schweser (following the procedure on page 26 in schweser)I would have to multiply -0.0011 * notional amount and discount this to day X (the day where the forward is valued). And this way it wouldn’t be the same result.
Because 20mio *-0.0011 and this discounted with the 5.9% rate (190day) just doesn’t equal the EURO -22’000 in the CFA book!
sorry but i really want to understand this!!
is it really just rounding and is it right that with the schweser method we have to discount the notional amount to the day x.作者: wizofoz 时间: 2013-4-10 17:50
ROUNDING..
calculate with 6 or more decimal places.
answer is -0.001073 in the book - which * 20 Mill = -21460
when you go our route - with the 0.0597 and 0.0619 and calculate you get -21487
