A GENERAL APPROACH TO VALUING COMMODITY-LINKED BONDS

Yufei Jin and Calum Turvey

No 20039, 2004 Annual meeting, August 1-4, Denver, CO from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The purpose of this paper is to develop a general approach to valuing commodity-linked bonds (CLBs) based on the Heath-Jarrow-Morton (HJM) framework. The model deals with four dimensions of uncertainty: prices of the underlying commodity, the value of firm that issues bonds, interest rates, and convenience yields. A mathematical formula for the price of a commodity-linked bond is derived. The previous results in Black and Scholes (1973), Merton (1973), Schwartz (1982), and Atta-Mensah (1992) can be obtained by specifying appropriate restrictions in the general model. Using similar assumptions, as found in Miura and Yamauchi (1998) and Carr (1987), more reasonable results can be obtained through the application of the present model.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 34
Date: 2004
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea04:20039

DOI: 10.22004/ag.econ.20039

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