Define the forward rate agreement of interest, r X Let f (T 1 , T 2 ) denote the forward rate over the period T 1 , T 2 and r 1 be the continuously compounded T 1 maturity rate Show that the value of a FRA is given by V t e r 2 T 2 P r X f (T 1 , T 2 ) (T 2 T 1 )

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Define the forward rate agreement of interest, r X . Let f (T 1 , T 2 ) denote the forward rate over the period

Define the forward rate agreement of interest, r_X. Let f (T₁, T₂) denote the forward rate over the period [T₁, T₂] and r₁ be the continuously compounded T₁-maturity rate. Show that the value of a FRA is given by:

V_t = e^-r₂T₂ P [r_X f (T₁, T₂)] (T₂ T₁)

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