The irony in the derivatives discounting

Marc Henrard ()

MPRA Paper from University Library of Munich, Germany

Abstract: A simple and fundamental question in derivatives pricing is the way (contingent) cash-flows should be discounted. As cash can not be invested at Libor the curve is probably not the right discounting curve, even for Libor derivatives. The impact on derivative pricing of changing the discounting curve is discussed. The pricing formulas for vanilla products are revisited in the funding framework described.

Keywords: Cost of funding; coherent pricing; interest rate derivative pricing; Libor; irony (search for similar items in EconPapers)
JEL-codes: D24 E43 G13 (search for similar items in EconPapers)
Date: 2007-03-26
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:3115

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