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Valuing Callable And Putable Revenue-Performance-Linked Project Backed Securities

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Author Info

  • FENG DONG

    ()
    (Department of Civil Engineering, Columbia University, New York, NY, 10027, USA)

  • NICOLA CHIARA

    ()
    (Department of Civil Engineering, Columbia University, New York, NY, 10027, USA)

  • JAN VECER

    ()
    (Department of Statistics, Columbia University, New York, NY, 10027, USA)

Abstract

Public owners face a constant demand for developing new projects and for funding the renewal, maintenance and operation of existing infrastructure projects. One way to raise capitals to provide new financial resources to constrained budgets is to securitize a stream of revenue cash flows from a portfolio of mature infrastructure projects. We present a new type of PBS, the revenue performance-linked project backed securities (PBS), with embedded call and put options. In this new PBS setting, risks for issuers and buyers can be confined within a cut-off area. This risk hedging feature is expected to facilitate the trading of such products.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 13 (2010)
Issue (Month): 05 ()
Pages: 751-765

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Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:05:p:751-765

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Related research

Keywords: Dynamic programming; simulation; real options; project finance;

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