Valuation of floating range notes in a LIBOR market model

Ting‐Pin Wu and Son‐Nan Chen

Journal of Futures Markets, 2008, vol. 28, issue 7, 697-710

Abstract: This study derives an approximate pricing formula of floating range notes (FRNs) within the multifactor LIBOR market model (LMM) framework. The LMM features the ease for calibration procedure, and the resulting pricing formula is more tractable. In addition, since the underlying rate of FRNs is usually the LIBOR rate, the pricing of the FRNs under the LMM is more direct and full of intuition. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:697–710, 2008

Date: 2008
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