Munich Personal RePEc Archive

The irony in the derivatives discounting

Henrard, Marc (2007): The irony in the derivatives discounting.

[img]
Preview
PDF
MPRA_paper_3115.pdf

Download (190Kb) | Preview

Abstract

A simple and fundamental question in derivatives pricing is the way (contingent) cash-flows should be discounted. As cash can not be invested at Libor the curve is probably not the right discounting curve, even for Libor derivatives. The impact on derivative pricing of changing the discounting curve is discussed. The pricing formulas for vanilla products are revisited in the funding framework described.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.