I am trying to calculate the yield and trading margin on an AUD FRN in a robust manner. I am hoping someone can help with a few details.
I am forecasting cash flows and solving for the discount rate that discount's these cash flows to the current price which will give me the yield.
- How can I estimate the future value of 3mBBSW?
For arguments sake lets say this FRN's coupon is calculated as 3MBBSW + coupon margin. In order to accurately forecast the coupon component of the future cash flows I must estimate the future rates of 3mBBSW. What is the best way to do this? 3mBBSW has a futures market - is there a way to extract from this the market's current expectation of future 3mbbsw?
- How do you then calculate trading margin?
As I understand it to calculate the trading margin of the security we would take the above calculated yield and subtract the rate of the swap curve at the corresponding tenor.
How can I construct the underlying swap curve? Is it based on the values of BBSW? If so how do I use these values to construct the swap full curve?
Hopefully this is all clear. I have looked everywhere and can't find any answers specifically relating to the AUD market.
Many thanks for your help.