Valuing Euro Rating-Triggered Step-Up Telecom Bonds

Arbeitspapier

We value rating-triggered step-up bonds with three methods: (i) the Jarrow, Lando andTurnbull (1997, JLT) framework, (ii) a similar framework using historical probabilities and(iii) as plain vanilla bonds. We find that the market seems to value single step-up bondsaccording to the JLT model, while it values multiple step-up bonds as plain vanilla bonds.Further, step-up feature market premiums are more volatile than JLT and historical premiums,and the JLT model approximates market premiums always better than the historical method.Finally, most step-up bonds offer a cushion against rating migrations via dampened pricemovements.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 03-028/2

Classification and Topics

• Classification: Wirtschaft ; Estimation: General ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: step-up bonds ; Jarrow-Lando-Turnbull model ; rating-based reduced form model ; transition probabilities. ; CAPM ; Anleihe ; Telekommunikationssektor ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Houweling, Patrick ; Mentink, Albert ; Vorst, Ton
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/86020
• Last update: 10.03.2025, 11:42 AM CET