July 2011
Intermediate to advanced
741 pages
17h 32m
English
book
Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
by R. Venkata Subramani
Content preview from Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's GuideBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
INTEREST RATE FLOOR INSTRUMENT—AN ILLUSTRATION
The details of interest rate floor instrument are given in Table 10.2 for the purpose of this illustration.
Recording the trade—contingent
This interest rate floor agreement is based on making a payment to the buyer of the instrument when a reference rate falls below the specified floor rate, the length of the period and the contract’s notional amount. As this is a notional amount and no physical exchange of money takes place, the investor has to pass an off balance sheet entry to record the transaction as shown in Table 10.3.
Table 10.3 At the inception of the interest rate floor contract
Account for the premium on the trade
The cost of the floor instrument on purchase is known as the non-refundable premium. The premium for an interest rate floor depends on the floor rate that the investor wants to get when compared to current market interest rates. The premium for an interest rate floor also depends on several other factors as this type of contract is very similar to that of an option contract, where the premium is based on the strike interest rate (floor rate), current interest rate, time to maturity of the contract, volatility—both historical and implied. When the contract is purchased then a premium is paid and when the contract is sold a premium is received. In a to pay contract a premium is received and the investor will have ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.