When solvong for the below in fixed income:
f(1,2) - here we take the square root of (1+r3 ^3 / 1+r1)
f(2,1) - for this calcualtion we dont take the square root! (1+r3^3 / 1+r2^2 )
can somebody explain why ?
When solvong for the below in fixed income:
f(1,2) - here we take the square root of (1+r3 ^3 / 1+r1)
f(2,1) - for this calcualtion we dont take the square root! (1+r3^3 / 1+r2^2 )
can somebody explain why ?
I wrote an article on calculating forward rates that may be of some use here: http://financialexamhelp123.com/calculating-forward-rates-from-spot-rates/