This thesis examines theoretical prices of levered differential floaters. Levered differential floaters are floating rate notes with dual reference rates. In addition, it provides a convenient tool for the practitioners to value FRN with Extended Cox, Ingersoll and Ross Model (1990). In particular, parameters were estimated from 3-month government bond yield and the interest term structure. After estimating parameters, a numerical method (trinomial tree) was used to find theoretical prices. The results show that the market prices of levered differential floaters are undervalued compared with the theoretical price. This reflects a lack of liquidity and the credit risk of FRN in the Korean bond market.
