A sovereign that is issuing debt denominated in foreign currency is exposed to a mismatch between the value of its assets that can be used to serve the debt, denominated in local currency, and the value of its liability. During economic crisis, when the probability of default by the sovereign...

We propose a new model for the valuation of loan commitments and some of their main features including the MAC (Material Adverse Change) clause. We employ a two-period contingent claim approach. The advantage of this approach is that it is based on rational economic considerations that are...

Many financial assets, especially government bonds, are issued by an auction. An important feature of the design is the auction pricing mechanism: Uniform vs. Discriminatory. Theoretical papers do not provide a definite answer regarding the dominance of one type of auction over the other. We...

In this paper a joint capital asset pricing model and option pricing model is considered and applied to the derivation of an equity's value and its systematic risk. We first analyze the propreties of the two models and present some newly found properties of the option pricing model. We then...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the...

This study proposes a more robust estimation of the implied volatility in the FX market, offers a possible explanation to the observed quot;smilequot; in implied volatilities based on a quot;clientele effectquot;, and tests the predictability of future volatilities in the FX market. We employ...

We study in this paper the considerations that should be taken into account in the decision of currency decomposition of debt. The problem we are addressing in this paper is what should be the differential credit spread for a given firm, whether it issues bonds in local currency or in a foreign...