Matching Forward Rates to ACT/360 Discounting Conventions

Summary

The document asks whether forward rates derived from one compounding convention can be used to calculate discount factors under ACT/360. It presents a method for deriving a forward rate from two spot rates and maturities, then proposes a discount-factor formula that uses the ACT/360 day-count convention.

The central issue is whether the quoted rates and the discounting formula use compatible compounding and day-count conventions. The document offers no answer or worked example, so it does not establish whether the proposed conversion is valid. A complete treatment would need to specify the input rate conventions, the definition of time to maturity, and how the forward rates are expressed before deriving discount factors.

Key ideas

• Forward rates are derived from rates at two maturities using their respective compounding periods.
• Discount factors depend on the day-count and compounding conventions used for the rates.
• The question does not resolve whether the proposed forward rates are compatible with ACT/360 discounting.

Tags

# Can I use these rates for ACT/360 discounting?


# Can I use these rates for ACT/360 discounting?












I have calculated forward rates like this: $r_{t_1,t_2} = \left(\frac{(1+r_2)^{d_2}}{(1+r_1)^{d_1}}\right)^{\frac{1}{d_2-d_1}} - 1 $

I want to find the discount factors for these forward, with ACT/360, with this formula: $ DF(T) = \frac{1}{( 1 + \frac{r}{360} )^{ 360T } } $

Can I use the above for the ACT/360 discounting, or I have to calculate the forward prices with ACT/360?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.