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Secondary Market Prices Under Alternative Debt Reduction Schemes: An Option Pricing Approach with an Application to Mexico

Author

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  • Claessens, Stijn
  • van Wijnbergen, Sweder

Abstract

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.

Suggested Citation

  • Claessens, Stijn & van Wijnbergen, Sweder, 1990. "Secondary Market Prices Under Alternative Debt Reduction Schemes: An Option Pricing Approach with an Application to Mexico," CEPR Discussion Papers 415, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:415
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    Cited by:

    1. Michael P. Dooley, 1994. "A Retrospective on the Debt Crisis," NBER Working Papers 4963, National Bureau of Economic Research, Inc.
    2. Cohen, Daniel, 1993. "A valuation formula for LDC debt," Journal of International Economics, Elsevier, vol. 34(1-2), pages 167-180, February.

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