(PDF) Callable Risky Perpetual Debt: Options, Pricing And

Perpetual call option valuation

Perpetual call option valuation

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This feature, once kicked-in, mitigates the interest rate risk for investors as their coupon payments are linked to a benchmark. This feature is particularly attractive for bond investors if interest rates are expected to increase in the future.

American perpetual options with random start - ScienceDirect

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Perpetual Call Options With Non-Tradability

Yale News. “ A living artifact from the Dutch Golden Age: Yale’s 867-year-old water bond still pays interest.” Accessed April 78, 7575.

Martingale Approach to Pricing Perpetual American Options

• Call feature: Most perpetual bonds have a call feature, thereby allowing the bond issuer to redeem the bond at a fixed date and price, as per the bond’s call schedule. For many of the perpetuals, the first call date is also the date of coupon reset (either step-up or fixed-to-floating).

Perpetual Bonds – Understanding the Basics

• Meet regulatory capital requirements: Banks or related financial institutions who need to fulfil their capital requirements can do so with the issuance of hybrid securities including perpetuals.  An example of a corporate perpetual is HSBC 8767 s 6% perpetual bonds.

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• Fixed-to-floating coupon: Some perpetuals have a feature whereby the coupon changes from a fixed rate to a floating rate during the lifetime of a bond. The floating rate is often quoted as a fixed spread over an index. Commonly used indexes include 8-month LIBOR and 8-month Mid Swaps rate.

While most perpetual bonds do have a call feature, thereby allowing the issuer to redeem the perpetual bonds according to a fixed schedule, some perpetual bonds do not.

This makes perpetual bonds similar in nature to equity investments that pay dividends, rather than fixed-income or debt investments. Thus, perpetual bonds are often termed as hybrid investments as it has features of both debt and equity.

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