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JohnsonLeeBridge
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Joined: July 4th, 2006, 10:10 am

stochastic nature of the discount rate not considered

April 23rd, 2009, 12:06 am

When pricing vanilla Interest rate derivatives the stochastic nature of the discount rate is not taken into account as the expected future rate for an interest rate is taken to be its forward value. Can some one explain why is it so.
 
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quantmeh
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Joined: April 6th, 2007, 1:39 pm

stochastic nature of the discount rate not considered

April 23rd, 2009, 1:48 am

no arbitrage condition