DP415 Secondary Market Prices Under Alternative Debt Reduction Schemes: An Option Pricing Approach with an Application to Mexico
|Author(s):||Stijn Claessens, Sweder van Wijnbergen|
|Publication Date:||April 1990|
|Keyword(s):||Debt Market, Debt Restructuring, Foreign Exchange, Option Pricing|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=415|
We present a pricing model for secondary market debt designed to assess the impact of debt reduction on valuation of remaining claims and to value guarantees in various forms. The technique used, option pricing, accounts explicitly for the sources and natures of risks on secondary market pricing and of the market value of various forms of guarantees. The method can handle different maturity schedules, expectations regarding foreign exchange availability and willingness to pay, and differences in seniority. The method is applied to an analysis and evaluation of the recent Mexico debt restructuring packa.