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Valuing Interest Payment Guarantees on Developing Country Debt
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1990: Issue 018
Language:
English
Publication Date:
01 Jan 1990
DOI:
https://doi.org/10.5089/9781451922721.001
ISBN:
9781451922721
ISSN:
1018-5941
Pages:
26
Keywords:
WP; guarantee; debt; payment; market value; yield; interest payment guarantee; guarantee contract; market price; guarantee G. However; rate of growth; secondary market; Securities markets; Interest payments; Treasury bills and bonds; Asset prices
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper develops a technique to value guarantees on interest payments on developing-country debt, and provides some preliminary estimates of the cost of such guarantees. The cost of interest payment guarantees is not directly observable because a guarantee is a contingent obligation that becomes effective only if the debtor fails to make a certain payment. The strategy adopted in this paper is to estimate the market price that an interest payment guarantee would have if such a contract existed and were traded in financial markets. Using results from option pricing theory it is possible to calculate the price that an “interest guarantee contract” would carry in financial markets on the basis of the price of developing-country debt in secondary markets.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1990: Issue 018