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oFRNstd_DM( ) Example

Description

Consider a Floating Rate Note with a valuation date of 1 September 2003, a settlement date of 3 September 2003, an effective date of 20 March 2002, and a maturity date of 20 March 2007. The FRN is trading at a clean price of $98,500, and the semi-annual coupons are based on a quoted margin of 30 basis points. The last reset rate was 5.45%, while the (constant) forecasted reset rate is 5.40%. The accrual basis is actual/360, the discount rate is 5.50%, and the notional amount is $100,000. Cash flows that fall on a business day are not adjusted.

Based on a valuation method that uses the Equal/Equal assumption, determine the discount margin of the FRN.

 

 

Function Specification

=FRNstd_DM(1, 99850, "1/09/03", "3/9/03", "20/3/02", "20/3/07", 2, 30, 100000, 0.0545, 0.054, 0.055, 3, 1, , 0)

 

 

 

Parameter Name

Parameter Value

 

 

 

 

 

Model

1

 

 

Clean Price

98500

 

 

Valuation Date

1 September 2003

 

 

Settlement Date

3 September 2003

 

 

Effective Date

20 March 2002

 

 

Maturity Date

20 March 2007

 

 

ResetFrequency

2

 

 

Quoted Margin

30

 

 

Notional Amount

1000000

 

 

Last Reset Rate

0.0545

 

 

Forecast Reset Rate

0.0540

 

 

Discount Rate

0.0550

 

 

Accrual Basis

3

 

 

Business Day Convention

1

 

 

Holiday Schedule

 

 

 

Output Flag

0

 

 

 

Solution

The following results are obtained:

Discount Margin

24.586217

Clean Price

99,850.0000

Accrued Interest

2630.8219

Dirty Price

102,480.8217

Macaulay Duration

3.178769

Modified Duration

3.089995

Convexity

11.787510

Price Value of a Basis Point

31.666527

 

 

For further details on how the above prices and statistics are calculated, see the FRN pricing formula.

 

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