given that we are 6 days into a 1 x 3 FRA, we can determine that there are 30-6=24 days remaining till expiry. we tack this 24 days on to the term of the FRA, giving us a 90+24=114 day period to discount the interest savings. can someone explain the logic of “adding” the 24 days rather than adding 6 days?
Is that a typo and you meant 60+24 there? OR am i really tired after a busy day at work?
yea. 60+24
1 x 3 FRA = 0----------[d=30]---------------30-------------------------[d=60]-------------------------90 . . 6 days later . . . 1 x 3 FRA = 0----6(today)----[d=24]------30-------------------------[d=60]-------------------------90 So imagine yourself on the 6th day. How many days are left for the FRA to expire [7…8…9…10…30] + [90-30] = 24 + 60 = 84
doesnt the FRA expire at 30 days in either case? so what i get from this is we have a longer discount period if we value prior to expiry. if we value at maturity, the FRA is discounted back till expiry, if we value 6 days in, we discount past the expiry to t0 (now).
It depends on when you want to value the FRA. For example, on the 6th day, you may decide to sell the FRA to someone else and be off the hook, or you may decide to stay for 24 more days, then settle the agreement.