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7

I provided an answer, based on an elementary approach, to an exactly same question yesterday. However, that question has disappeared, even though I like to keep a record for what I wrote. I would suggest that people do not delete their questions as they may be helpful for others. Here, I re-post that answer. We assume that, under the risk-neutral ...

4

See this excellent paper by @MarkJoshi which defines/discusses the use of power numeraires. Starting from a dynamics specified under the risk-neutral measure $\mathbb{Q}$ \begin{align} &\frac{dS_t}{S_t} = (r-q) dt + \sigma dW_t^{\mathbb{Q}}\\ \iff& S_T\ \vert\ \mathcal{F}_t = S_t e^{(r-q-\frac{\sigma^2}{2})(T-t) + \sigma(W_T-W_t)} \tag{EQ.0} ...

0

Thanks, Great, the discount factor will change in accordance to the date and fixed payments as well. If we have the swap contract, and it has td+2, as it value date, will we incorporate the 2 extra days, from the td+2 into the calculation as well? FRA vs Bond method pricing of swaps: From the Hull 2012, the bond method (instead of using the FRA ...

0

The floating rate used to determine the interest payment in any given float leg roll depends on the fixing appropriate to the start of the roll. So if the only change to this IRS structure is to extend the final roll by 2 days, then that final rate will just be calculated to include the extra days using the day count convention, and that payment will be ...

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