0
$\begingroup$

Sorry if this is a very basic or flawed question but I am struggling. I have a known Discount Margin and I am ultimately looking to compute a price from this value as I do not have one. Alternative if its possible to convert to OAS that would work too as I can then use that in my Price Calculator.

All the information I have if the Maturity Date and Spread to the EURIBOR and have assumed a Quarterly reset and payment frequency.

Any help and suggestion would be greatly appreciated.

Thanks in advanced.

$\endgroup$
0
$\begingroup$

you need to use a cashflow generator that can discount the cash flows like bloomberg. Convention for CMO floaters is to hold the index constant with a reasonable prepayment assumption (PSA/CPR) and use the market DM to get a price. Calculating OAS requires a model.

$\endgroup$
0
$\begingroup$

For a simple floater, the discount margin over the reference index equals the coupon margin plus the price discount to par (if any) spread over the life of the note. Thus, it is like yield to maturity for floaters. For example 5yr maturity Coupon = euribor + 50 Price = 99.50 Then the discount to par is 0.50% which is worth about 10bp per annum on a 5yr. Therefore the yield on the bond is equivalent to euribor + 60 and the discount margin is 60.

You can also run this backwards to get price from discount margin.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.