vipin172000
New Member
Hi David,
I am a little lost when it comes to pricing and valuation of swaps.
Consider this specific example on slide 63 of 3.a.iv:
Here's what I understood:
1) You take the Spot LIBOR curve
2) You convert the Spot rates into (implied) forward rates
3) Why do you then convert these forward rates into semi annual rates??
Is this because the cash flows are made semi annually?
If that's the case , should we ALWAYS use semi annual compounding eventually?
Also , on the same lines , on slide 62 of the same presentation, why do you then use the discount factors using continuous discounting instead of using semi annual ?
Hope you can clarify this.
Cheers
VM
I am a little lost when it comes to pricing and valuation of swaps.
Consider this specific example on slide 63 of 3.a.iv:
Here's what I understood:
1) You take the Spot LIBOR curve
2) You convert the Spot rates into (implied) forward rates
3) Why do you then convert these forward rates into semi annual rates??
Is this because the cash flows are made semi annually?
If that's the case , should we ALWAYS use semi annual compounding eventually?
Also , on the same lines , on slide 62 of the same presentation, why do you then use the discount factors using continuous discounting instead of using semi annual ?
Hope you can clarify this.
Cheers
VM