3.6 Continuous Compounding (Page 43) In the limit as we compound more and more frequently we obtain continuously compounded interest rates $100 grows to $100eR/when invested at a continuously compounded rate R for time T' $100 received at time t discounts to $100e-RT at time zero when the continuously compounded discount rate is r Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 3.6 Continuous Compounding (Page 43) • In the limit as we compound more and more frequently we obtain continuously compounded interest rates • $100 grows to $100eRT when invested at a continuously compounded rate R for time T • $100 received at time T discounts to $100e-RT at time zero when the continuously compounded discount rate is R
3.7 Conversion formulas (Page 44) Define R: continuously compounded rate Rm: same rate with compounding m times per year R R=mIn 1+ R=ml e Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 3.7 Conversion Formulas (Page 44) Define Rc : continuously compounded rate Rm: same rate with compounding m times per year ( ) R m R m R m e c m m Rc m = + = − ln / 1 1
3.8 Notation o: spot price today Fo: Futures or forward price today T. Time until delivery date r. Risk-free interest rate for maturity T Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 3.8 Notation S0 : Spot price today F0 : Futures or forward price today T: Time until delivery date r: Risk-free interest rate for maturity T