Call Features and Term to Maturity of Callable Foreign Bonds
This paper models the value of "embedded" options in foreign bonds, using stochastic calculus, by assuming that the exchange rate follows a geometric Brownian motion process and the arrival time of an early redemption of the bond by the issuer conforms to a negative exponential distribution. The solution to the stochastic model shows that there is a relationship between the call premium and the expected time to the call.
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|Date of creation:||1996|
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Web page: http://economics.anu.edu.au/economics.htm
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