Financial engineering of SVS bonds for the Argentine capital market: early redemption option and exchange rate hedging
A valuation model for SVS bonds in pesos with put options, against exchange rate risk, is developed. A numerical model incorporating an early put option is proposed, based on comparing the current dollar strike price with the present value of the bond in future dollars. It allows calculating the str...
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| Formato: | Artículo revista |
| Lenguaje: | Español |
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Facultad de Ciencias Económicas de la Universidad Nacional del Nordeste - UNNE
2025
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| Acceso en línea: | https://revistas.unne.edu.ar/index.php/rfce/article/view/8872 |
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| Sumario: | A valuation model for SVS bonds in pesos with put options, against exchange rate risk, is developed. A numerical model incorporating an early put option is proposed, based on comparing the current dollar strike price with the present value of the bond in future dollars. It allows calculating the strategic value of the bond, composed of its present value plus the abandonment option. The stochastic process is binomial, based on reference rates in the market denominated in local currency and US dollars. Exchange rate conversions and projections are grounded in interest rate parity theories, future exchange rate, the law of one price, and the Fisher effect. Case analysis is conducted using classic performance indicators such as nominal, real return, duration, modified duration, and convexity. Subsequently, maintaining the currency and structure of the instrument in pesos, a bond with a rescission option convertible into foreign currency is developed, and tested with two hypothetical volatility scenarios on reference interest rates. The effectiveness of the early put option as a hedging instrument against exchange rate risk and its potential attractiveness for developing a liquid market in domestic current are concluded.
JEL: G13; G18. |
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