Call Features and Term to Maturity of Callable Foreign Bonds

Vincent Hooper () and J. Pointon

Working Papers from Australian National University - Department of Economics

Abstract: This paper models the value of "embedded" options in foreign bonds, using stochastic calculus, by assuming that the exchange rate follows a geometric Brownian motion process and the arrival time of an early redemption of the bond by the issuer conforms to a negative exponential distribution. The solution to the stochastic model shows that there is a relationship between the call premium and the expected time to the call.

Keywords: FINANCIAL MARKET; BONDS; INTERNATIONAL FINANCE (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G15 G19 (search for similar items in EconPapers)
Pages: 10 pages
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:fth:aunaec:306

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