Hybrid financial instruments

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  • In one way or another, business activity must be financed. Without finance to support their fixed assets and working capital requirements, businesses could not exist. There are three primary sources of finance for companies: ● a cash surplus from operating activities ● new equity funding ● borrowing from bank and non-bank sources. Non-bank sources are mainly investors in the capital markets who subscribe for bonds and other securities issued by companies.

    pdf110p taurus23 25-09-2012 27 16   Download

  • A non–financial variable not specific to a party to the contract includes, for example, an index of earthquake losses in a particular region and an index of temperatures in a particular city. A non–financial variable specific to a party would be, for example, the occurrence or non-occurrence of a fire that damages or destroys an asset of a party to the contract.

    pdf736p bin_pham 06-02-2013 23 6   Download

  • The pricing of credit-sensitive bonds, that is, bonds which have a significant probability of default, is an issue of increasing academic and practical importance. The recent practice in financial markets has been to issue high yield corporate bonds that are a hybrid of equity and risk-free debt. Also, to an extent, most corporate bonds are credit-sensitive instruments, simply because of the limited liability of the issuing enterprise. In this paper, we suggest and implement a model for the pricing of options on credit-sensitive bonds.

    pdf14p taisaocothedung 12-01-2013 25 3   Download

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