On the Pricing of Step-Up Bonds in the European Telecom Sector

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On the Pricing of Step-Up Bonds in the European Telecom Sector

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dc.contributor.author Lando, David en_US
dc.contributor.author Mortensen, Allan en_US
dc.date.accessioned 2009-02-04T10:26:19Z
dc.date.available 2009-02-04T10:26:19Z
dc.date.issued 2004-12-27T00:00:00Z en_US
dc.identifier.isbn 8790705882 en_US
dc.identifier.uri http://hdl.handle.net/10398/7184
dc.description.abstract This paper investigates the pricing of step-up bonds, i.e. corporate bonds with provisions stating that the coupon payments increase as the credit rating level of the issuer declines. To assess the risk-neutral rating transition probabilities necessary to price these bonds, we introduce a new calibration method within the reduced-form rating-based model of Jarrow, Lando, and Turnbull (1997). We also treat split ratings and adjust for rating outlook. Step-up bonds have been issued in large amounts in the European telecom sector, and we find that, through most of the sample, step-up bonds issued by the two largest issuers have traded at a discount relative to comparable fixed-coupon bonds from the same issuers. Our findings cannot be attributed to traditional liquidity factors, and they suggest that issuing step-up bonds increased the cost of capital for the issuers. Keywords: defaultable bonds, step-up coupons, rating-based models JEL classification: G12, G13 en_US
dc.format.extent 47 s. en_US
dc.language eng en_US
dc.relation.ispartofseries Working paper;2004-009 en_US
dc.subject.other kep en_US
dc.title On the Pricing of Step-Up Bonds in the European Telecom Sector en_US
dc.type wp en_US
dc.accessionstatus modt04dec27 miel en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.idnumber 8790705882 en_US
dc.publisher.city København en_US
dc.publisher.year 2004 en_US


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