IMF Working Papers

Is There a Novelty Premium on New Financial Instruments? The Argentine Experience with GDP-Indexed Warrants

By Luca A Ricci, Marcos d Chamon, Alejo Costa

April 1, 2008

Download PDF

Preview Citation

Format: Chicago

Luca A Ricci, Marcos d Chamon, and Alejo Costa. Is There a Novelty Premium on New Financial Instruments? The Argentine Experience with GDP-Indexed Warrants, (USA: International Monetary Fund, 2008) accessed November 7, 2024
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

This paper examines the Argentine experience with GDP-indexed warrants in order to gauge the existence of a novelty premium on new financial instruments. It develops a Monte Carlo pricing exercise to calculate the expected net present value of payments, on the basis of various forecast assumptions. The results show that the residual premium paid by these warrants over standard bonds declined significantly by about 600 basis points between December 2005 and July 2007. This suggests that financial innovation may be associated with premia, which decay reasonably fast.

Subject: Currencies, Discount rates, Exchange rates, Inflation, Securities

Keywords: Discount rate, GDP warrant, U.S. dollar, Unit of currency, WP

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2008/109

  • Stock No:

    WPIEA2008109

  • ISBN:

    9781451869699

  • ISSN:

    1018-5941