Post by Sapphire Capital on Nov 5, 2008 0:40:50 GMT 4
Is There a Novelty Premium on New Financial Instruments? The Argentine Experience with GDP-Indexed Warrants
Marcos Chamon
International Monetary Fund (IMF) - Research Department
Alejo Costa
Luca Antonio Ricci
International Monetary Fund (IMF) - Research Department
May 2008
IMF Working Paper No. 08/109
Abstract:
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.
papers.ssrn.com/sol3/Delivery.cfm/wp08109.pdf?abstractid=1153730&mirid=1
Marcos Chamon
International Monetary Fund (IMF) - Research Department
Alejo Costa
Luca Antonio Ricci
International Monetary Fund (IMF) - Research Department
May 2008
IMF Working Paper No. 08/109
Abstract:
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.
papers.ssrn.com/sol3/Delivery.cfm/wp08109.pdf?abstractid=1153730&mirid=1