How to Evaluate Gdp-Linked Warrants: Price and Repayment Capacity

37 Pages Posted: 17 May 2006

See all articles by Ken Miyajima

Ken Miyajima

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: March 2006

Abstract

Following a brief review of the recent history of GDP-linked instruments, this paper proposes a set of tools to examine the quantitative properties of GDP-linked warrants. It argues that trigger conditions should be clearly identifiable and payment amounts easily calculable. Based on a design that includes these features and historical data for the main EMBI countries, the paper provides an assessment of the issuer's capacity to service GDP-linked warrants, comparing payments with tax revenues stemming from contemporaneous growth. The price of the GDP-linked warrants are then estimated from the point of view of both domestic and foreign investors.

Keywords: GDP-linked bonds, Monte Carlo methods, binomial model

JEL Classification: G12, G13, G15

Suggested Citation

Miyajima, Ken, How to Evaluate Gdp-Linked Warrants: Price and Repayment Capacity (March 2006). IMF Working Paper No. 06/85, Available at SSRN: https://ssrn.com/abstract=901876

Ken Miyajima (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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