What I mean is, if the question specifically states that - find out the value of FRA "at the time of settlement" -, then settlement is at t=40. Since FRAs are advanced set, advanced settled. In this case, we will pull back the value to t=40 using the relevant discount rate.
What I mean is, if the question specifically states that – find out the value of FRA “at the time of settlement” -, then settlement is at t=40.
Since FRAs are advanced set, advanced settled.
In this case, we will pull back the value to t=40 using the relevant discount rate.
Term Structure and Interest Rate Dynamics
Term Structure and Interest Rate Dynamics
That is only the logic. If you take numbers and plot them across a graph, you'll get the conclusion stated by you in the question.
That is only the logic. If you take numbers and plot them across a graph, you’ll get the conclusion stated by you in the question.
See lessValuation of Forward Rate Agreement (FRA)
What I mean is, if the question specifically states that - find out the value of FRA "at the time of settlement" -, then settlement is at t=40. Since FRAs are advanced set, advanced settled. In this case, we will pull back the value to t=40 using the relevant discount rate.
What I mean is, if the question specifically states that – find out the value of FRA “at the time of settlement” -, then settlement is at t=40.
Since FRAs are advanced set, advanced settled.
In this case, we will pull back the value to t=40 using the relevant discount rate.
See lessPricing of Forwards – Derivatives
Oh, okay, understood, thank you. Sorry , I missed that discussion.
Oh, okay, understood, thank you. Sorry , I missed that discussion.
See lessValuation of Forward Rate Agreement (FRA)
We are valuing the bond today, i.e., at t=0. Not at t=40. Hence the RCL 1 is used to pull the value back to t=0.
We are valuing the bond today, i.e., at t=0. Not at t=40. Hence the RCL 1 is used to pull the value back to t=0.
See less