2003-08-07
Valuing Euro rating-triggered step-up telecom bonds
Publication
Publication
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.
Additional Metadata | |
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hdl.handle.net/1765/1082 | |
Econometric Institute Research Papers | |
Organisation | Erasmus School of Economics |
Houweling, P., Mentink, A. A., & Vorst, T. (2003). Valuing Euro rating-triggered step-up telecom bonds (No. EI 2003-50). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/1082 |