We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Retractable and Extendible Bonds: The Canadian Experience.
- Authors
ANANTHANARAYANAN, A. L.; SHWARTZ, EDUARDO S.
- Abstract
Since the publication of the seminal papers by Black and Scholes and Merton on the pricing of options and corporate liabilities, their basic framework has been extended and applied to a variety of problems in finance. More recently, the same framework has been used for the valuation of interest dependent claims, and in particular for the pricing of default free bonds. These securities (generally government bonds of various types) are valued by treating them as "contingent" upon the course of one or more interest rates, along with suitable assumptions about the term structure of interest rates. Brennan and Schwartz assume that the value of a default free bond is a function solely of the instantaneous interest rate and time to maturity, and show that various types of bonds—savings bonds, retractable and extendible bonds, and callable bonds—all follow the same partial differential equation as discount bonds, the distinguishing feature being the associated boundary conditions. Taking into account the considerable theoretical work that has been done, there is relatively little published empirical research testing these models. Most of the empirical work in the area of contingent claims analysis has been on the stock options market, with the exception of Ingersoll on the pricing of dual fund shares and Brennan and Schwartz on the valuation of Canadian Federal Government coupon bonds. In this paper contingent claims analysis is applied to the valuation of retractable and extendible bonds and the resultant model is then applied to price Government of Canada bonds.
- Subjects
CANADA; BONDS (Finance); STOCK options; INTEREST rates; STOCHASTIC processes; CONTINGENT valuation; DIFFERENTIAL equations; VALUATION; SAVINGS bonds; GOVERNMENT securities; BOUNDARY value problems; FINANCE
- Publication
Journal of Finance (Wiley-Blackwell), 1980, Vol 35, Issue 1, p31
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1980.tb03469.x