I have seen this approach in my work and I would like to understand the theoretical justification behind this approach.
To calculate the interest rate PV01 of a floating rate note. A synthetic bond is created that pays the next coupon (which was fixed already during the previous coupon payment date) and the face value (say 100) at the next coupon payment date. The price of this bond is equated to the price of a hypothetical treasury bond that pays 100 at the next coupon payment date. The yield of this synthetic bond is calculated and the yield based sensitivity (pv01) is termed as the pv01 of the original floater.
I haven’t been able to understand how the two prices are equal. Can anybody help me out here?