This thesis investigates theoretical price of FRN using Hull and White term structure model(1994) and Jarrow and Turnbull Model(1995).
Hull-White model is a single-factor, no arbitrage approach to modeling the term structure of interest rates. It models the term structure by describing the evolution of the short rate. Implementing this model results in a trinomial pricing tree that can be used to price complex interest rate derivatives. Parameters were estimated from 91-day CD rate and the interest term structure. And Jarrow and Turnbull Model is used for pricing FRN involving credit risk.
The analysis shows that the market prices of general FRN are undervalued compared with the theoretical prices.
