Template-Type: ReDIF-Paper 1.0
Author-Name: Houweling, P.
Author-Name-Last: Houweling
Author-Name-First: Patrick
Author-Person: pho1
Author-Name: Mentink, A.A.
Author-Name-Last: Mentink
Author-Name: Vorst, A.C.F.
Author-Name-Last: Vorst
Author-Name-First: Ton
Author-Person: pvo117
Title: Valuing Euro rating-triggered step-up telecom bonds
Abstract: We value rating-triggered step-up bonds with three methods: (i) the Jarrow, Lando and Turnbull (1997, JLT) framework, (ii) a similar framework using historical probabilities and (iii) as plain vanilla bonds. We find that the market seems to value single step-up bonds according to the JLT model, while it values multiple step-up bonds as plain vanilla bonds. Further, step-up feature market premiums are more volatile than JLT and historical premiums, and the JLT model approximates market premiums always better than the historical method. Finally, most step-up bonds offer a cushion against rating migrations via dampened price movements.
Creation-Date: 2003-08-07
File-URL: https://repub.eur.nl/pub/1082/ei200350.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2003-50
Handle: RePEc:ems:eureir:1082