Consider the RQuantLib package function FloatingRateBond().

This takes as inputs gearings and spreads, whose correct definition is unknown to me.

Let I have a floating rate bond, e.g. the BACRED Float 06/18/20 (whose ISIN code is IT0004921646): this bond pays annually EURIBOR 3M + $140$ bps.

What gearings and spreads of this bond are supposed to be?

Since this issuer has a 7Yr credit spread of about 230 bps (and I can interpolate its CDS curve to have every tenor), I would like to know if the curve argument should be replaced with the yield curve made up by EUR deposit/IRS curve + credit spread curve.

I guess the index argument, conversely, is the spot swap curve and the forward rates are computed from it.

P.S.: yes, I admit it, I'm reading the QuantLib documentation but I'm not understanding anything about this class.


1 Answer 1


I'm familiar with the library, but not with the way it is exported to R. Anyway:

gearings are optional multipliers of the LIBOR fixing (some bonds might pay, for instance, 0.8 times the LIBOR) and spreads are the added spreads. In your case, the gearing is 1 and the spread is 0.0140 (that is, 140 bps; rates and spread must be expressed in decimal form).

curve is the curve you want to use for discounting. Using the swap curve plus a spread is a possibility. However, note that the CDS spread might not be an exact proxy for the spread to be applied. At the very least, the CDS spread is a quarterly rate simply compounded, whereas (depending on what classes are exported) you might need a continuously compounded rate in order to spread the swap curve. You'll have to perform the conversion first.

In the library, the index argument would be an instance of an index class such as Euribor3M, whose constructor in turn would take the swap curve. I don't know how that's managed in RQuantLib.

  • $\begingroup$ Before accepting your answer (ma sei Italiano? :)), let me ask you something more about the index argument: in the RQuantLib documentation examples it is shown the index argument is built like the curve one, that is, using something like a discount curve (pairs of rate ~ years). As of the curve, what if I used the issuer yield curve via some interpolation technique? $\endgroup$
    – Lisa Ann
    Commented Aug 23, 2013 at 15:00
  • 2
    $\begingroup$ Si', si vede? :) Yes, if you have an issuer curve, you should be able to sample it and pass it to the bond to be used as the discount curve (it's probably better than the swap curve plus spread). You'll probably want to sample it at the coupon dates, so that you get the correct discount factors for those dates. $\endgroup$ Commented Aug 23, 2013 at 15:01
  • $\begingroup$ The fixed-income code in RQuantLib needs an overhaul pretty badly... I have been asked this before, including by Lisa Ann, and I generally respond that a pure C++ solution is a good first step after which one can address the R connection issues... $\endgroup$ Commented Aug 23, 2013 at 19:08
  • 5
    $\begingroup$ Oh, and I'm familiar with the library will qualify as the quant.stackexchange.com understatement of the year ;-) $\endgroup$ Commented Aug 23, 2013 at 19:11

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