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Valuing Coupon Bond Linked to Variable Interest Rate

Author

Listed:
  • Giandomenico, Rossano

Abstract

The paper analyses coupon bonds linked to variable interest rate in a contingent claim approach such that it can be decomposed in elementary options on interest rate and options to default. It is considered the case of continuous arithmetic average of interest rate in a simple capitalization to value the variable coupon paid by the bonds at maturity. The paper determines the expected interest rate on the bonds and the risk spread due to the default risk.

Suggested Citation

  • Giandomenico, Rossano, 2008. "Valuing Coupon Bond Linked to Variable Interest Rate," MPRA Paper 21974, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21974
    as

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    File URL: https://mpra.ub.uni-muenchen.de/21974/1/MPRA_paper_21974.pdf
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    References listed on IDEAS

    as
    1. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Giandomenico, Rossano, 2006. "Asset Liability Management in Insurance Company," MPRA Paper 16333, University Library of Munich, Germany, revised Jan 2009.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Contingent claim; Asian option; Stochastic continuous process;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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