Suppose we are on time t and have to value a forward contract. If the risk free rate has changed to 5% from previously 4% (when we priced the forward). What discount rate to you use to discount the forward in order to compare it with the current spot price, the old 4% or the new 5%? Thanks guys
Forward discount depends on the future values (or expected values) of RFR or carry price. 5% is a better estimate of expected RFR value than 4%.
Thanks!