How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity
Author | : Ken Miyajima |
Publisher | : International Monetary Fund |
Total Pages | : 42 |
Release | : 2006-03 |
ISBN-10 | : UCSD:31822034374199 |
ISBN-13 | : |
Rating | : 4/5 (99 Downloads) |
Book excerpt: 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.