A probabilistic approach to the valuation of general floating rate notes with an application to interest rate swaps

Abstract

The aim of this article is to get an exact formula to price Floating Rate Notes. The authors will go further in order to price Interest Rate Swaps, in a stochastic term structure environment. Main assumptions of the article are the following, the market is complete, and the probability (explained thereafter) is unique. This article uses martingales, which are an easier way to calculate than solving Partial Derivatives Equations.