Consider a hypothetical contract called a reversing pair by Joshi (2008, p 319), which consists of a long position in a forward rate agreement, running from T 0 to T 1 , and a short position in another FRA, spanning T 1 to T 2 Suppose the reversing pair pays off at time T 2 Under which measure shou...

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Consider a hypothetical contract called a reversing pair by Joshi (2008, p. 319), which consists of a

Question:

Consider a hypothetical contract called a “reversing pair” by Joshi (2008, p. 319), which consists of a long position in a forward rate agreement, running from T₀ to T₁, and a short position in another FRA, spanning T₁ to T₂. Suppose the reversing pair pays off at time T₂. Under which measure should this contract be priced and why?

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