IDEAS home Printed from https://ideas.repec.org/p/fth/pennfi/21-85.html
   My bibliography  Save this paper

The Valuation of Floating Rate Instruments - Theory and Evidence

Author

Listed:
  • Krishna Ramaswamy
  • Suresh Sundaresan

Abstract

A framework for valuing floating rate notes is developed and used to examine the effects of (1) lags in the coupon averaging formula, (2) special contractual features and (3) default risk. Evidence on a sample of U.S. floaters is presented and indicates that these notes sold at significant discounts over the sample period. We find that while the lag structure in the coupon formulas and the special contractual features make these notes more variable, they are unable to account for the magnitude of the observed discounts. Based on numerical analysis of a valuation model with default, we conclude that the fixed default premium embodied in the coupon formula at the time of issuance of a typical note is inadequate to compensate for the time-varying default premiums demanded by investors, who will treat other corporate short-term paper as close substitutes: the observed discounts are most consistent with this hypothesis.

Suggested Citation

  • Krishna Ramaswamy & Suresh Sundaresan, "undated". "The Valuation of Floating Rate Instruments - Theory and Evidence," Rodney L. White Center for Financial Research Working Papers 21-85, Wharton School Rodney L. White Center for Financial Research.
  • Handle: RePEc:fth:pennfi:21-85
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:21-85. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: http://edirc.repec.org/data/rwupaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.