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I was hoping somebody can assist me with a query. Would it be a valid approach to revalue a frn with a discount margin from a comparable bond as par minus the difference between the quoted margin and comparable margin multiplied by the notional?

Thanks

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I don't see any issue with it as long as the terms and attributes of the two FRNs are comparable. Were the two FRNs issued on the same date?

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  • $\begingroup$ Thanks for getting back to me. It's actually a basket of fixed rate comparables and I'm using the z-spread and the difference to the frn quoted margin to approximate the value. Would this stil be a valid approximation? $\endgroup$ – Quantico Sep 13 '17 at 7:21
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Reading your question and the comment, it could at at best be an approximation. There is a basis between the FRN and the bond because they are different products and subject to different supply and demand conditions. The basis would vary over time. If the maturities are not aligned then there would be another basis (e.g., tenor basis). The basket proxy would introduce yet another basis.

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