Consider an overnight rate $r_{ON}$ and a one-week rate $r_{1W}$.A settlement period of 2 days is associated to the rate $r_{1W}$.

In order to compute the overnight discount factor, since the first rate has 0 settlement period, I apply the simple compounding formula $DF(t, t+1) = \frac{1}{1+\alpha_{0,1}r_{ON}}$, where $\alpha_{0,1}$ is the accrual factor.

$r_{1W}$ is, to my knowledge, the discount rate I can use to compute the FORWARD discount factor $DF(t, t+2, t+2+7)$, am I right? How can I get the discount factor DF(t, t+2) in order to get DF(t, t+2+7)? What are the different solutions that can be used?

Thank you mr. Merlo

  • $\begingroup$ Do you have both ON and TN rates? $\endgroup$
    – Helin
    Sep 11 '20 at 20:29
  • $\begingroup$ I have only ON and 1 Week rate $\endgroup$
    – mr. Merlo
    Sep 13 '20 at 9:20

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