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Pricing sovereign contingent convertible debt
(The Wharton Financial Institutions Center. The Wharton School, University of Pennsylvania, PA., 2017-11)
We develop a pricing model for sovereign contingent convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's credit default swap CDS spread. One innovation is the modeling of CDS spread regime switching ...
Pricing and Hedging GDP-Linked Bonds in Incomplete Markets
(The Wharton Financial Institutions Center. The Wharton School, University of Pennsylvania, PA, 2017-09)
We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a byproduct of the model, we obtain a hedging ...
Risk management optimization for sovereign debt restructuring
(Journal of Globalization and Development, Vol. 6(2), pp. 181–213, Feb. 2016.; The Wharton School Financial Institutions Centre No. 14-10., 2015-12)
Debt restructuring is one of the policy tools available for resolving sovereign debt crises and, while unorthodox, it is not uncommon. We propose a scenario analysis for debt sustainability and integrate it with scenario ...
Contingent convertible bonds for sovereign debt risk management
(The Wharton Financial Institutions Center. The Wharton School, University of Pennsylvania, PA., 2015-11)
We consider convertible bonds that contractually stipulate payment standstill, contingent on a market indicator of a sovereign's creditworthiness breaching a distress threshold. This financial innovation limits ex-ante the ...