Question: Demonstrate, from a static hedging argument, that the fair rate, at time t T1, for a contract which pays Libor over a period [T1,

Demonstrate, from a static hedging argument, that the fair rate, at time t ≤ T1, for a contract which pays Libor over a period [T1, T2] is given by: F(t; T1, T2): = 1 P(t, T) T(T1, T2) P(t,T2) -1)

F(t; T1, T2): = 1 P(t, T) T(T1, T2) P(t,T2) -1)

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