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How to Evaluate GDP-Linked Warrants; Price and Repayment Capacity

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  • Ken Miyajima

Abstract

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.

Suggested Citation

  • Ken Miyajima, 2006. "How to Evaluate GDP-Linked Warrants; Price and Repayment Capacity," IMF Working Papers 06/85, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/85
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18977
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    References listed on IDEAS

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    1. Athanasoulis, Stefano G. & van Wincoop, Eric, 2000. "Growth uncertainty and risksharing," Journal of Monetary Economics, Elsevier, pages 477-505.
    2. Eduardo Borensztein & Olivier D Jeanne & Paolo Mauro & Jeronimo Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
    3. Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
    4. Chamon, Marcos & Mauro, Paolo, 2006. "Pricing growth-indexed bonds," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3349-3366, December.
    5. Stefano G. Athanasoulis & Robert J. Shiller, 2001. "World Income Components: Measuring and Exploiting Risk-Sharing Opportunities," American Economic Review, American Economic Association, vol. 91(4), pages 1031-1054, September.
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    Cited by:

    1. Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," NBER Working Papers 20964, National Bureau of Economic Research, Inc.
    2. Biswa Nath Bhattacharyay, 2012. "Modes of Asian financial integration: financing infrastructure," Chapters,in: Infrastructure for Asian Connectivity, chapter 10, pages 349-401 Edward Elgar Publishing.
    3. Stavros A. Zenios, 2013. "The Cyprus Debt: Perfect Crisis and a Way Forward," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 7(1), pages 3-45, June.
    4. Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2014. "Public Sector Funding and Debt Management: A Case for GDP-Linked Ṣukūk," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 22, pages 185-216.
    5. Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," Open Economies Review, Springer, vol. 26(5), pages 839-867, November.
    6. Biswa Nath Bhattacharyay, 2010. "Financing Asia’s Infrastructure : Modes of Development and Integration of Asian Financial Markets," Finance Working Papers 21883, East Asian Bureau of Economic Research.
    7. Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2011. "Public Sector Funding and Debt Management: A Case for GDP-Linked Sukuk," MPRA Paper 46008, University Library of Munich, Germany, revised 2011.

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