On The Economics And Pricing Of Newly Emerging Bond Varieties: Micro And Macro Effects Of Foreign And Catastrophe Bonds
This dissertation studies two newly emerging bond varieties - the foreign bond and the CAT bond. Concerning the foreign bond, we focus on its micro-level impact on the equity value of the issuing firm. We derive a theoretical model to explain why the issuance of foreign bonds impacts firm value through the channel of foreign exchange risk. Then, we empirically test the stock price reaction to the launch of two foreign bonds - dim sum bonds and Eurodollar bonds. We further show that the crosssectional differences among stock reactions result from foreign exchange volatility rather than from other bond characteristics. Concerning the CAT bond, we focus on its macro-level impacts on the economic development, risk financing and sovereign debt sustainability of least-developed countries. We examine the roles of the CAT bond as both an ex ante risk financing strategy and an ex post economic development tool. We discuss how the issuance of a government sponsored CAT bond improves the sovereign debt sustainability in an static social wealth maximization framework. In the end, we illustrate how to simulate the price of a drought linked CAT bond through the well-defined closed form solution and show that our simulation technique is adaptive and robust to different settings.
Foreign Bonds; Catastrophe Bonds; Bond theories and pricing
Turvey, Calum G.Turvey, Calum G.
Bogan, Vicki L.; Jarrow, Robert A.; Huang, Ming; Bogan, Vicki L.
Ph.D. of Agricultural Economics
Doctor of Philosophy
dissertation or thesis