Hi all,
Can a floater with a floor and prepayment have a duration greater than the period until the next fixed interest day? And if so, why? What happens when the interest is negative?
Thank you!
Yes. Consider a 5 year USD floater paying Libir flat, floored at 10%. This is, for all practical purposes a fixed rate bond, and will thus have the corresponding duration.Hi all,
Can a floater with a floor and prepayment have a duration greater than the period until the next fixed interest day? And if so, why? What happens when the interest is negative?
Thank you!