Calculates the value of the forward rate agreement (FRA) for a holder which pays an interest rate `agreedRate' within the period between `firstMaturity' and `secondMaturity' on a principle sum `principle'.
public double ForwardRateAgreementWithExplicitTime( doubleprincipleSum, doubleagreedRate, doublefirstMaturity, doublesecondMaturity, doubleforwardRate, doublezeroRate );
Parameters
principleSum
The principle sum which changes hands in the FRA.
agreedRate
The rate of interest payment (in decimal format, i.e. 1 percent = 0.01) agreed within the period `firstMaturity' and `secondMaturity'. Note that this interest rate is expressed with respect to the compounding period `(firstMaturity - secondMaturity)'.
firstMaturity
The time in years (in decimal format) at which the FRA begins.
secondMaturity
The time in years (in decimal format) at which the FRA expires.
forwardRate
The forward rate for the period between `firstMaturity' and `secondMaturity'. Note that this interest rate is expressed with respect to the compounding period `(firstMaturity - secondMaturity)'.
zeroRate
The continuously compounded zero-coupon interest rate for the maturity `secondMaturity'.
Remarks
Remarks
The value of the contract to the party who receives the principle
sum and pays interest is just the negation of the value calculated here.
The interest rate paid by the contract and the forward interest rate
are usually set to be equal when the FRA is initiated.
Care should be taken that the various interest rates are expressed with
respect to the correct compounded period. In particular, the forward rate and
the agreed rate must be expressed with respect to the period `(firstMaturity -
secondMaturity)'. Whereas the discounting zero-coupon interest rate is expressed
as a continuously compounded rate.