Pricing average price options for the 1990 Mexican and Venezuelan recapture clauses
AbstractThis paper derived closed form solutions for the pricing of options on average prices and recapture clauses. On this basis, the values of recapture clauses in the Mexico and Venezuela agreements under alternative assumptions regarding the state variable underlying the clauses are estimated. The paper shows that the sensitivity of the values of the recapture clauses with respect to the stochastic process of the underlying variable is different than expected. The more"stationary"the process driving the underlying variable becomes, the more valuable the recapture clause becomes. The reason is that the effect of an increasing variance on the value of the recapture clauses is analytically unclear since in the two agreements the clauses are"collars", bounded above and below. Only in the empirical application does it show that increasing the variance reduces the value of the collar.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 541.
Date of creation: 30 Nov 1990
Date of revision:
Markets and Market Access; Access to Markets; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leonardo Bartolini & Avinash K. Dixit, 1990.
"Market Valuation Of Illiquid Debt And Implications For Conflicts Among Creditors,"
IMF Working Papers
90/88, International Monetary Fund.
- Leonardo Bartolini & Avinash Dixit, 1991. "Market Valuation of Illiquid Debt and Implications for Conflicts among Creditors," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 828-849, December.
- 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.
- Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.