The Valuation of Puttable Bonds: An Application of the Cox, Ingersoll and Ross Model to Italian Treasury Option Certificates

17 Pages Posted: 5 Mar 2004

See all articles by Emilio Barone

Emilio Barone

Luiss - Guido Carli (Dpt. of Economics and Finance)

Domenico Cuoco

University of Pennsylvania - Finance Department

Date Written: June 1989

Abstract

The Italian Treasury's puttable bonds (Certificati del Tesoro con opzione di rimborso anticipato - CTOs) are the first example in Italy of retractable/extendible bonds, which have been used on the Canadian market for some time and recently been adopted on the Euromarket. In this paper the single-factor version of the Cox, Ingersoll and Ross model is used to determine the equilibrium value of CTOs at issue. The simulation of the effects of changes in their features provides useful information on the optimal design of CTOs.

Suggested Citation

Barone, Emilio and Cuoco, Domenico, The Valuation of Puttable Bonds: An Application of the Cox, Ingersoll and Ross Model to Italian Treasury Option Certificates (June 1989). Available at SSRN: https://ssrn.com/abstract=512502 or http://dx.doi.org/10.2139/ssrn.512502

Emilio Barone (Contact Author)

Luiss - Guido Carli (Dpt. of Economics and Finance) ( email )

Viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/barone/

Domenico Cuoco

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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