How to Evaluate GDP-Linked Warrants; Price and Repayment Capacity
Following a brief review of the recent history of GDP-linked instruments, this paper proposes a set of tools to examine the quantitative properties of GDP-linked warrants. It argues that trigger conditions should be clearly identifiable and payment amounts easily calculable. Based on a design that includes these features and historical data for the main EMBI countries, the paper provides an assessment of the issuer's capacity to service GDP-linked warrants, comparing payments with tax revenues stemming from contemporaneous growth. The price of the GDP-linked warrants are then estimated from the point of view of both domestic and foreign investors.
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- Stefano G. Athanasoulis & Robert J. Shiller, 2001.
"World Income Components: Measuring and Exploiting Risk-Sharing Opportunities,"
American Economic Review,
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- Paolo Mauro & Marcos d Chamon, 2005.
"Pricing Growth-Indexed Bonds,"
IMF Working Papers
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"Growth Uncertainty And Risksharing,"
41, Iowa State University Department of Economics.
- Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
- Eduardo Borensztein & Olivier D Jeanne & Paolo Mauro & Jeronimo Zettelmeyer & Marcos d Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
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