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Your have the following data on different rates for the same maturity of 1.5 years. However the rates are quoted on different basis and compounding
Your have the following data on different rates for the same maturity of 1.5 years. However the rates are quoted on different basis and compounding frequencies:
- Continuously compounded rate: 2% per annum (i.e. annualized)
- Continuously compounded rate: 3% over the holding period (i.e. over 1.5 years)
- Annually compounded rate: 2.1% per annum
- semi-annually compounded rate: 2.01% per annum
You are looking for an arbitrage opportunity. Is there any mis-pricing here and if so how would you execute the arbitrage?
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