How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity

Author/Editor:

Ken Miyajima

Publication Date:

March 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2006/085

Subject:

Currencies Debt service Exchange rate adjustments Exchange rates Inflation

English

Publication Date:

March 1, 2006

ISBN/ISSN:

9781451863451/1018-5941

Stock No:

WPIEA2006085

Pages:

37

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