Search results for "Risk-free bond"

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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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