How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity
IMF Working Papers, March 1, 2006
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- Canonical URL
- How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity
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Bibliographic details
- Authors: Ken Miyajima
- Published: March 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451863451.001
Summary
- Follows a brief review of the recent history of GDP-linked instruments.
- Proposes a set of tools to examine the quantitative properties of GDP-linked warrants.
- Argues that trigger conditions should be clearly identifiable and payment amounts easily calculable.
- Uses a design that includes these features and historical data for the main EMBI countries to:
- Assess the issuer's capacity to service GDP-linked warrants by comparing payments with tax revenues stemming from contemporaneous growth.
- Estimate the price of GDP-linked warrants from the point of view of both domestic and foreign investors.
Methodology and Analytical Tools
- Emphasizes design features that make trigger conditions and payment formulas transparent and calculable.
- Applies the proposed tools to historical data for the main EMBI countries.
- Compares warrant payment obligations to contemporaneous tax revenues to assess repayment capacity.
Assessment of Repayment Capacity
- Key analytic approach:
- Compare projected payments on GDP-linked warrants with tax revenues linked to contemporaneous GDP growth.
- Purpose:
- Evaluate whether issuers can service GDP-linked warrant payments given historical relationships between GDP growth and tax revenue.
Pricing from Investor Perspectives
- Provides estimates of GDP-linked warrant prices:
- From the perspective of domestic investors.
- From the perspective of foreign investors.
- Pricing assessment is based on the warrant design and historical country data used in the paper.
Publication and Metadata
- Author: Ken Miyajima
- Date: March 1, 2006
- Pages: 37
- Volume: 2006
- Issue: 085
- Series: Working Paper No. 2006/085
- DOI: https://doi.org/10.5089/9781451863451.001
- Stock No: WPIEA2006085
- ISBN: 9781451863451
- ISSN: 1018-5941
- Subject: Currencies, Debt service, Exchange rate adjustments, Exchange rates, Inflation
- Keywords: GDP-linked warrant, payment, price, real GDP, WP
IMF Working Paper — Ken Miyajima, "How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity", March 1, 2006.