Valuing a currency swap as FRA


New Member
Hello! Hope everyone is safe!

The attached is from Hull Ch. 7, Q 7.5. Can anyone please let me know how to convert to continuously compounded interest rates as has been done in the highlighted part?


  • Hull 7.5.JPG
    Hull 7.5.JPG
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Active Member

It comes from the relation r continuous = ln(1+r annual), for example the us rate continuously compounded is given by ln(1+4%)=3.922%

The general relation is given by rc = ln(1+ rk/k) equivalent to rk = (exp(rc)-1)*k where rc is the continuously coumpounded rate and rk the rate coumpounded k times in a year time.


Active Member
You're welcome. Another question that might help you, why do we observe, in the hull example, that r continuous < r annual ?
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