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On the pricing of GDP-linked financial products

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Author Info

  • Susanne Kruse
  • Matthias Meitner
  • Michael Schroder

Abstract

This paper discusses the pricing of GDP-linked financial products. GDP-linked bonds for instance are bonds which pay a coupon tied to the changes of GDP (Gross Domestic Product): if economic growth is low, the coupon decreases while a strong economic rise leads to a higher coupon. Therefore these innovative financial instruments are able to translate changes in the business cycle and long-term prospects into changes in the issuing country's debt service, taking into account GDP development. Against the background of a growing interest in macro-indexed financial instruments and Argentinas very recent offer to issue GDP-linked bonds, different characteristics of GDP-linked bonds are briefly discussed and a simple pricing approach for GDP-linked bonds and European options on GDP development is provided assuming a Black-Scholes type environment.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100500359260
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 16 ()
Pages: 1125-1133

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:16:p:1125-1133

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Web page: http://www.tandfonline.com/RAFE20

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Web: http://www.tandfonline.com/pricing/journal/RAFE20

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  1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  2. Jarrow, Robert & Yildirim, Yildiray, 2003. "Pricing Treasury Inflation Protected Securities and Related Derivatives using an HJM Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 337-358, June.
  3. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Guest post: GDP-Linked Bonds (by David Eagle)
    by Lars Christensen in The Market Monetarist on 2012-02-21 20:21:01
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Cited by:
  1. Hanewald, Katja & Post, Thomas & Gründl, Helmut, 2011. "Stochastic mortality, macroeconomic risks, and life insurer solvency," ICIR Working Paper Series 01/11, International Center for Insurance Regulation (ICIR), Goethe University Frankfurt.
  2. Mark J. Kamstra & Robert J. Shiller, 2009. "The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation," Cowles Foundation Discussion Papers 1717, Cowles Foundation for Research in Economics, Yale University.
  3. Michael Schröder & Friedrich Heinemann & Susanne Kruse & Matthias Meitner, 2007. "Pay high in good times, pay low in bad times," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 667-683.
  4. Mark Kamstra & Rpbert J. Shiller, 2008. "The Case for Trills: Giving Canadians and their Pension Funds a Stake in the Wealth of the Nation," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 271, August.

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