The pricing of High Yield Equity Notes

Paul J. Duncan and Stephen A. Easton

Accounting and Finance, 2002, vol. 42, issue 3, 239-249

Abstract: High Yield Equity Notes are securities that provide the noteholder with a cash flow stream that comprises a fixed yield and a short position in a European put option on the shares of an Australian company. This paper examines the pricing of these securities and finds apparent overpricing compared with expectations given standard pricing relationships. This apparent overpricing is consistent with the low transaction costs incurred by purchasers of High Yield Equity Notes.

Date: 2002
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