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TRS funding leg
Hi.I am looking for a paper on the valuation of the funding leg of a TRS.Assuming I entered into a TRS on a 10m bond maturing in 2005 where I receive L+50bp. Both, maturity of the bond and TRS is 2015.If I want to enter into a TRS on the same 10m bond today (to 2015) market level would be 150bp.Is there a market convention how to value the funding leg (ignoring counterparty risk for this discussion)?Thank you
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- nayakchandan
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TRS funding leg
TRS pricing is pretty straight forward - just find out the cost of holding the asset in your book. So it should be simply funding cost less any benefit from the asset ( repo value, stock loan value etc.) Its subjective to the market maker though and depends on how well the manage the inventory and more importantly how willing to undercut the competition.
TRS funding leg
nayakchandan,Thank you.What I am wondering is how to get the MTM of the funding leg.Assuming I am funding an asset since 2005 and to 2015 under a TRS, receiving 25bp. Funding is more expensive now than in 2005.In order to assess the MTM I would be looking for the spread I would get entering into this TRS to 2015 now (same asset, maturity 2015).Is this correct? If so what market should I be looking for to see this spread?