4
votes
Accepted
Can I use spot rates bootstrapped from a swap curve to price a bond?
The general - and short - answer would be no: Except for some hypothetical cases, unless you have a convincing model for the residual spread-over-swap, you cannot use swaps to value your bond.
Quick ...
- 6,554
4
votes
Accepted
Duration of a floating rate bond with spread
Is formula (1) correct?
Yes, follows from first definition - floater with deterministic spread is composed (sum) of two components: (1) pure floater and (2) deterministic coupon strip via contractual ...
- 161
3
votes
When are daycounts needed for the floating leg of a swap?
You are reliant on the formula for the rate of the floating period being as stated:
$$
F_t = \left ( \frac{P(t-1)}{P(t)} - 1 \right ) \frac{1}{\delta_t}
$$
and the period DCF $\delta_t$ being equal. ...
- 10.2k
3
votes
Accepted
Accrued interest calculation for floaters linked to O/N rates (such as SOFR)
It is possible to calculate with lagged O/N rate, shifted coupon period etc.
Yes, the terms I often hear to describe these are "lookback" and "observation shift". Referring to a ...
- 46
3
votes
Accepted
Expected Cash flows of a Floating Rate Note
If you are trying to value the FRN, plugging in the forward rates and then discounting is a method that works.
If you are trying (as you specifically say) to calculate the expected cash flows, then ...
- 17.1k
3
votes
Calculating discountmargin using flat yield
I am a co-author of that paper. You may want to check out FinancePy which is a beta version of a finance library where I have implemented the code for calculating the discount margin. Here is an ...
- 2,147
2
votes
Accepted
How does Bloomberg arrive at FRN Total Price?
I may be missing something, but I think you're overcomplicating it. You don't need discount margin and all that jazz.
The clean price (entered in upper left corner) is 100.311% The face value (...
- 12.3k
2
votes
Accepted
FRN duration when discount curve and projection curve have non-perfect correlation
In that case the duration needs to be carefully defined and interpreted. To first order, the duration is approximately zero, because the simplest assumption is to move the projection curve (5yr ...
- 17.1k
2
votes
How is Bloomberg's fixed-equivalent yield on a floater calculated?
Quote [fixed equivalent] yield is determined by assuming the coupon rate on the floater is swapped to a synthetic fixed rate and then solving for the internal rate of return. Endquote link
In other ...
- 11.2k
1
vote
Accepted
How does the isInArrears affect the quantlib IborLeg?
In QuantLib the following occurs for the floating coupon if isInArrears is true:
...
- 301
1
vote
How to interpret YTM of FRN when interest rates change?
While this sounds like a basic question, it does bring up a few nuances that are worth discussing.
First, suppose you have a fixed-coupon bond, rather than FRN. When risk-free rates go up, the coupons ...
- 12.3k
1
vote
How to calculate the yield of a perpetual bond that pays a floating coupon payment?
Let's stick with first principles and assume a single-curve world. Assume a discount factor curve $D_i\equiv D(t_i), t\geq 0, D(0)=1$. The risk-neutral expected forward rate from $t_i$ to $t_{i+1}=t_i+...
- 6,554
1
vote
falling flatforward curve in quantlib
Set the interest rate in the FlatForward construction to be ql.Compounded or ql.Continuous.
...
- 96
1
vote
Is this simple model used to calculate the interest rate duration and credit duration of a floating rate note? Other models?
I don't have enough repuation to commnet, but I think it is a general cashflow discount model for bond pricing, and the formula looks wrong. The last item should be discounting of principal and last ...
- 81
1
vote
Accepted
Calculating discountmargin using flat yield
I think you mean this:
Another DM variant is this:
Source:
This document has numerical examples.
- 12.3k
1
vote
How does the yield of a floater change when the discount/required margin changes?
This is not how most people calculate the yield of a floater.
The way most people calculate the yield of a floater is:
1 for each remaining unset coupon, project the values of the index that will be ...
- 12.3k
1
vote
Do floating rate bonds always trade near par?
A floating rate bond trading at par is more like an academic formulation rather than what you would observe in reality.
If there were only one yield curve and the bond has no credit spread, that in ...
- 5,815
1
vote
book of options hedging case of floating rate
The question of how to hedge an option portfolio on multiple underlyings against tail risks is not an easy one, nor what with a single answer.
There are probably two big risks:
- a period of ...
- 812
1
vote
Pricing a Vanilla swap between coupons; What rates to use?
Linear interpolation of the discount factors is not a good idea.
A better idea, in the absence of a full analysis, is to linearly interpolate the logarithm of the discount factors.
You can use the ...
- 10.2k
1
vote
Calculating YTM for a floating rate bond
The yield is the internal rate of return of the coupons and the principal repayment. For a floater, the future unset coupons are not known, and the value of the yield depends a lot on how you project ...
- 12.3k
1
vote
For a Floating Rate note, is there a way to convert the Discount Margin into OAS or Price?
If you use Python, check out this example notebook on FinancePy
https://github.com/domokane/FinancePy/blob/master/notebooks/products/bonds/FINBONDFRN_CitigroupExample.ipynb
The function you need is ...
- 2,147
1
vote
Valuing an interest rate swap using a par swaps curve?
My understanding is as follows - you pay 100 at $T=0$, receive LIBOR+40bp annually, and get back 100 at the end of the deal. This is actually a cash outflow of 100, plus a floating rate note (FRN). ...
- 1,671
1
vote
Zero Coupon Curve and Floating Rates Notes pricing
The website below shows how to price bonds from curves, currently it only supports fixed rate and zero-coupon bonds, but it might give you an idea how to price a floater using similar concept:
Goto: ...
- 66
1
vote
Calculating Discount Margin on a floating rate bond using QuantLib
Update (2018-10-09):
This solution is more correct. It's a class that solves for the DM using the class ForwardSpreadedTermStructure.
...
- 71
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