I want to issue an inverse floater. I know the components are 1) Short inverse floater and 2) Long coupon bond. What is the third component? What are the net cash flows?作者: Chuckrox 时间: 2011-7-11 19:46
A long interest rate cap on LIBOR to offset the implicit short call in the guarantee to pay a non-negative rate on the inverse floater in case LIBOR exceeds 'a'
Net cash flow = x - (a - LIBOR) - LIBOR + swap rate = x - a + swap rate作者: bodhisattva 时间: 2011-7-11 19:46
soddy, thx again for posting this outlier
however, after I now had some time looking for leveraged/inverted floaters - i could not even find them in the schweser parts.
Further, in the LOS of SS 43 there is no direct hint to leverage / inverse floaters
So, anyone thinks this is a highly likely question?作者: lcw77 时间: 2011-7-11 19:46
I know the shortcut calculation and what you need to implement the hedge. If they ask any more detail on this, I'll be more than happy to donate those points. Not worth the time at this stage.
NO EXCUSES作者: cityboy 时间: 2011-7-11 19:46
malawyer100 Wrote:
-------------------------------------------------------
> soddy, thx again for posting this outlier
>
> however, after I now had some time looking for
> leveraged/inverted floaters - i could not even
> find them in the schweser parts.
>
> Further, in the LOS of SS 43 there is no direct
> hint to leverage / inverse floaters
>
> So, anyone thinks this is a highly likely
> question?
a search on 'leveraged floater' on the 5 schweser books draws a blank!! one more reason why you shouldn't have blind faith on schweser
