Value of a plain Vanilla Interest rate swap from FRA

[Arka Bose]

In the stated case, we are finding out the cash flow of floating rate payment by converting the Continuous rates to discrete rates.

Why cant we use cash flows of forward continuous rates like it is done with two simultaneous bond positions?

 

[QuantMan2318]

In case of a FRA, we are finding both the Cash inflow as well as outflow, the LIBOR rates given are that of the LIBOR/Zero curve and by bootstrapping we find the rate for the interval, since the exchange is the exchange of the Actual LIBOR, the interest outgo is valued at the rate for the discrete period, say semiannually. You may have noticed that the discounting is still done one the continuous rates as was done for the Bond