Dear All:
If I have FRA1x3 and to value this FRA , do I disccount the payoff back to the expiration point (3rd month to 2nd month) discount back to initiation point ( 3rd month back to the beginning)? I remember in CFA level I, it is discount back to expiration point but in Level II , it is discount back to the beginning point.
thank you so you much for your time
You discount the payoff back to the current point in time.
So at expiration, you discount back to expiration, because you’re trying to work out the current value of something you’re receiving in the future.
At any time before expiration, you discount it back to the current point in time.
At the beginning of the FRA the rates have been calculated so there is no payoff. (there is only a payoff if rates change.)