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Bond Indexation and Exhaustible Resources and Depletion

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  • Howard Kaufold

Abstract

In this paper it is shown that an exhaustible resource owner’s supply response to the offer of an indexed bond depends on the correlation between the relative price of the resource and the price to which the bond contract is indexed. The indexed bond encourages current extraction only if this correlation is weak; a strong (positive or negative) correlation implies that the availability of the indexed bond discourages current production. This result is then explained in terms of two distinct and sometimes competing insurance effects generated by the indexed bond offer.

Suggested Citation

  • Howard Kaufold, "undated". "Bond Indexation and Exhaustible Resources and Depletion," Rodney L. White Center for Financial Research Working Papers 1-83, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:1-83
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