benbenxiong

the show NY Wrote:
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> tikkigod Wrote:
> --------------------------------------------------
> -----
> > green360 Wrote:
> >
> --------------------------------------------------
>
> > -----
> > > ok, but why? am trying to understand the
> logic
> > > behind it.
> >
> >
> > you are discounting the 90 day unannualized
> rate
> > by the 30 day unannualized rate to get the
> present
> > value.
>
>
> No. Discounting 120 by 30 to get 90. The goal is
> to find the 90 day rate. You want to find a 90
> day rate such that investing for 30 and rolling
> over at 90 is the same thing as investing for 12.
> If this doesnt hold you have arbitrage whch is no
> good. So to get the 90 day rate you have to
> discount the 120 day rate by 30 days.


Wow! Thanks for correcting me. I should really look more closely at the underlying meanings rather than just memorizing the formulas. I think I'll review some derivatives tonight.