What does f(2,3) mean. A 2 year forward in 3 years?
Is this the same as 2f3?
2,3 means 3 year forward rate 2 years from now.
That is the tricky thing about forwards they aren’t like FRAs. The second number in forwards is the length of time, with the FRAs it is when the underlying ends.
It’s the same as 3f2. The numbers are reverse. This is a three year forward rate, two years from today.
f(T*,T), where T* is the point in time when the loan will be initiated (2 years) and T represents the term of the loan.
Trick to keep it straighth. F(2,3) – I always say it as, “The in-two-years, 3-year rate”. If it sounds dumb, I know I’m saying it right.
so f(2,3) = starts in 2 years, runs 3 years.
Same as 3f2.
And a 2x3 FRA is a 1 month loan starting in 2 months?
Confusing!
Correct.