Advanced Fixed Income Analysis, 2nd Edition

Chapter 10

Floating-Rate Notes

Abstract

This chapter provides an introduction of floating-rate notes. In particular, we show the structure of this type of instruments as coupon payment, reference rate and day count conventions and the main difference to the fixed-rate bonds. Theoretical model explanation and practical examples have been provided, including trading issues.

Keywords

FRN

Quoted margin

Reference rate

Reset risk

Discount margin

Chapter Contents

10.1 Main features of floaters   207

10.2 The structure   209

10.2.1 Coupon payment   209

10.2.2 Reference rate   210

10.2.3 Day count conventions   210

10.3 The valuation   210

10.3.1 Theoretical pricing models   210

10.3.2 The pricing   211

10.3.3 Simple and discounted margin   211