Discount factor ↩

aliases: []
shorthands: {}
created: 2022-02-20 22:46:43
modified: 2022-02-20 22:51:48

Explanation

and sets up a contract that starts now and ends at :

• Right now (at time ) gives a fixed amount of money
• Then in return, at time , pays unit of money

To make it a fair contract, right now gives the amount denoted by . This is called the discount factor in the contract.

Value for a contract of zero tenor

Then the discount factor is simply :

Properties

• Multiplicative: where