MtM Value of TRS Funding Leg
Hi all, I have some questions about the valuation of total return swaps (TRS). Suppose a TRS consists of two legs (equity leg and funding leg). For the equity leg, it will be the total return of 50 selected Japanese stocks, whereas for the funding leg, the payment will be Equity Notional*[abs(JPY 1M LIBOR) + 50bps] paid after one year. The JPY 1M LIBOR is -0.17283 % on the trade date so the funding cost will be 0.67283%.
My questions are:
1. How could I provide a daily MtM value of the funding leg? My thought is: discounting the amount of Equity Notional*0.67283% back to the reporting date. Yet, I am not sure of which discount rate to use
2. In this case, is there any PnL associated with the funding leg please? For me, the funding cost is like a one-off payment after one year, the only factor that can impact the value of the funding leg is time, so there will be a PnL due to change in time I guess? Does calculating that PnL as simply [MtM(t) - MtM(t-1)] suffice?
Thank you very much for your help.
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