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Tagged with risk-free-rate valuation
2 questions
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Which Discount Rate when Valuing Interest Rate Swaps as Forward Rate Agreements
Quick question about interest rate swaps and Forward Rate Agreements (FRAs). In Hull Chapter 4 (Interest Rates), to value an FRA he constructs the following portfolio:
Position 1 (FRA to receive $R_K$ ...
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Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?
I have persistent, deep problems with the concept of 'risk-neutrality'. To make it more precise, let's look at the following explanation taken from a book:
"In a world where investors are risk ...
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