Search results for "Contingent bond"

showing 3 items of 3 documents

Pricing sovereign contingent convertible debt

2018

We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff-Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. …

Credit default swapmedia_common.quotation_subjectMonetary economicsregime switchingFOS: Economics and businesssovereign debtSettore SECS-S/06 -Metodi Mat. dell'Economia e d. Scienze Attuariali e Finanz.Sovereignty0502 economics and business050207 economicsSovereign debtConvertible bondmedia_commonContingent bond050208 finance05 social sciencesRegime switchingPaymentcredit default swapDebt restructuringdebt restructuringBusinessPricing of Securities (q-fin.PR)General Economics Econometrics and FinanceQuantitative Finance - Pricing of SecuritiesFinance
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Pricing and hedging GDP-linked bonds in incomplete markets

2018

Abstract We model the super-replication of payoffs linked to a country’s GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a byproduct of the model we obtain a hedging portfolio. Using linear programming duality we compute also the risk premium. The model applies to coupon-indexed and principal-indexed bonds, and allows the analysis of bonds with different design parameters (coupon, target GDP growth rate, and maturity). We calibrate for UK and US instruments, and carry out sensitivity analysis of prices and risk premia to the risk factors and bond design parameters. We also compare coupon-indexed and principal-indexed bonds. F…

Incomplete marketEconomics and EconometricsHistoryControl and OptimizationPolymers and PlasticsFinancial economicsContingent bonds; Debt restructuring;Asset pricing; Incomplete markets; Risk premium; Stochastic programming; Super-replicationRisk premiumStochastic programmingDebt restructuringIndustrial and Manufacturing EngineeringSettore SECS-S/06 -Metodi Mat. dell'Economia e d. Scienze Attuariali e Finanz.Incomplete markets0502 economics and businessEconometricsEconomicsCapital asset pricing model050207 economicsBusiness and International ManagementSuper-replicationContingent bond050208 financeApplied MathematicsBond05 social sciencesRisk premiumAsset pricingBond market indexMaturity (finance)Stochastic programmingRisk-free bond8. Economic growthPortfolioCoupon
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Pricing and Hedging GDP-Linked Bonds in Incomplete Markets

2017

We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a byproduct of the model, we obtain a hedging portfolio. Using linear programming duality we also compute the risk premium. The model applies to coupon-indexed and principal-indexed bonds, and allows the analysis of bonds with different design parameters (coupon, target GDP growth rate, and maturity). We calibrate for UK and US instruments and carry out a sensitivity analysis of prices and risk premia to the risk factors and bond design parameters. We also compare coupon-indexed and principal-indexed bonds. Results …

Incomplete marketsRisk premiumStochastic programmingDebt restructuringAsset pricingSuper-replicationContingent bonds
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