Munich Personal RePEc Archive

Valuing Coupon Bond Linked to Variable Interest Rate

Giandomenico, Rossano (2008): Valuing Coupon Bond Linked to Variable Interest Rate.

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Abstract

The paper analyses coupon bonds linked to variable interest rate in a contingent claim approach such that it can be decomposed in elementary options on interest rate and options to default. It is considered the case of continuous arithmetic average of interest rate in a simple capitalization to value the variable coupon paid by the bonds at maturity. The paper determines the expected interest rate on the bonds and the risk spread due to the default risk.

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