Pricing growth-indexed bonds |
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Authors: | Marcos Chamon Paolo Mauro |
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Institution: | aResearch Department, International Monetary Fund, 700 19th Street NW, Washington, DC 20431, United States |
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Abstract: | Growth-indexed bonds have been suggested as a way of reducing the procyclicality of emerging-market countries’ fiscal policies and the likelihood of costly debt crises. Investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle. In an effort to reduce such concerns, this article presents a simple way of pricing growth-indexed bonds. As a pleasant by-product, the analysis tracks the quantitative implications of an increase in the share of growth-indexed bonds in total debt, measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued. |
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Keywords: | Emerging markets GDP-indexed bonds Monte-Carlo simulation |
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