The present value of one unit of currency due at a future date. It is derived from the spot rate for that maturity.
Where you will meet it
Discount factor comes up in 21 learning outcome notes across the FRM syllabus.
A few of them:
Insurance Companies and Pension Plans FRM Part I · Financial markets and products
“Here v is the discount factor 1 ÷ (1 + r) for interest rate r.”
Machine-Learning Methods FRM Part I · Quantitative analysis
“Here α is the learning rate and γ is the discount factor, between 0 and 1.”
Pricing Conventions, Discounting, and Arbitrage FRM Part I · Valuation and risk models
“A discount factor d(t) is the present value today of one unit of currency to be received at date t, so it is below 1 when interest rates are positive.”
Credit Derivatives FRM Part II · Credit risk measurement and management
“Written out, the adjustment is CVA = LGD × Σ (probability the seller defaults in the period × expected positive exposure × discount factor).”
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.