Floating Rate Note Pricing


Bond Pricing functions support the pricing and risk management for floating rate note instruments (FRN's). Like standard fixed-coupon bonds, FRN's are debt instruments that make periodic coupon payments. However, for FRN's, each payment amount is dependent on the (uncertain) level of a pre-specified reference index. The rate reset date is almost always at the beginning of the coupon period, and a margin is quite commonly added to the observed reference rate.

Resolution supports two broad calculation types:

		Calculation Approach		Pricing Function			Template
		.
		1.	Formula - Constant Future Coupons	oFRNstd_Price( )			FRN1 - Standard (Formula)
		2.	Iterative - Projected Future Coupons from Zero Curve	oFRNctm_Price( ) oFRNctm2_Price( )			FRN1 - Standard (Projected) FRN2 - Custom 1 FRN3 - Custom 2

The choice of the most appropriate function is dependent on the complexity of the FRN under consideration. The features of each function are set out below:

	FRN Feature				oFRNstd_Price	oFRNctm		oFRNctm2
	.
	Projected coupon payments				No	Yes		Yes
	Amortizing / Accreting notional FV				No	Yes		Yes
	Reset frequency different from coupon frequency				No	Yes		Yes
	Support for stub first or last periods				No	No		Yes
	Support for ex-dividend period				No	No		Yes
	Ability to generate coupon payment cycle forward from effective date				No	No		Yes

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