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Defaultable FRN
Hi,Could someone provide a good reference on defaultable FRNs?Most of the articles that I have seen are all based on the simple default-free assumptions, while more up-to-date texts (e.g. Brigo & Mercurio II, Schoenbucher) develop a framework for finding the price given the LGD and prob of default. However, I would like to infer the yield of an FRN given its price and compare it to the yield of an equivalent fixed coupon bond.In general, is there any relationship between the yield of a fixed coupon bond and an FRN from the same issuer with the same maturity?Thanks.
Defaultable FRN
The following two papers provide what I was looking for and may be of interest to others. www.watc.wa.gov.au/CLIENTS/PDF/FRN%20Example.pdfThe FRN pdf at:http://www.jse.co.za/Products/Informati ... ns.aspxThe second one provides gentle and intuitive derivation of the formula contained in the first.