RUSSIAN BONDS AS BINARY OPTIONS

Russia

Posted by icourt (09-04-98)
RUSSIAN BONDS AS BINARY OPTIONS

From RUSSIA with love: some thoughts for your weekend... following an offshoot remark by an EM trader we started to price the Russian eurobonds and Prins as binary options, rather than straight bonds. A binary pays out 0 or 1 depending on the outcome of a specified event. What event in our case? Basic solvency, enough to retain the existence of sovereign debt in USD. Solvency is the major concern, as revealed by the Cliton and Yeltsin conference, since in its absence, nuclear arms and technology will be sold out play the James Bond theme song here. The long-term danger lies here, not so much the internal Russian economy itself, with regards to the rest of the world. In sum, nuclear proliferation is the event risk on which we price our binary assets. This seems the keenest perspective on Russian external debt, unless you have other thoughts... RSVP. "Russia is too nuclear to fail" so is it 0 or 1 ? <icourt@planetall.com>

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