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An analysis on the difference between bank index-linked bonds’ prices and their fair-value

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  • Michele Leonardo Bianchi

    (Banca d’Italia)

Abstract

Index-linked bonds are structured products whose returns depend on performance of one or more financial indexes. They can be seen as the sum of a bond and an option (derivative component).The work explores some of the issues for the evaluation of the theoretical value (or fair value) of this type of bonds, providing an order of magnitude of the difference between the issue price (gross of fees) and the theoretical value (mispricing), and its evolution in time (mispricing on the secondary market).The present study has several purposes: 1) examine the market for indexlinked bonds listed on the Italian Stock Exchange (Mot); 2) describe a model for the evaluation of the theoretical value (or fair-value); 3) understand through an econometric model the determinants of mispricing on the secondary market

Suggested Citation

  • Michele Leonardo Bianchi, 2014. "An analysis on the difference between bank index-linked bonds’ prices and their fair-value," BANCARIA, Bancaria Editrice, vol. 6, pages 28-48, June.
  • Handle: RePEc:ban:bancar:v:06:y:2014:m:june:p:28-48
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    More about this item

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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