New answers tagged swaps
The essence of discounting is that now is less risky than later. So a contract to deliver £1 in 1 year is more risky than one to deliver £1 tomorrow, (the counterparty could suffer a credit event) so it is worth less. Discount factors multiply; if I know that £1 at 1y is worth £0.98 today, and £1 at 2y is worth £0.98 at 1y (i.e. equal rates for both ...
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