Valuation models

FRA and forward rates

Implied simple forward rates, FRA value, settlement amount and PV01 from a zero curve.

Inputs

The FRA pays the contract rate and receives the fixing.

Results

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Methodology

Conventions

  • Simple forward rate between the start and end times on the chosen curve.

References

  • Hull, Options, Futures, and Other Derivatives, ch. 4

Formulas

Forward
F = (D(t1)/D(t2) − 1) / τ
Value
V = N τ (F − K) D(t2)