TY - JOUR
T1 - Pricing long bonds
T2 - Pitfalls and opportunities
AU - Dybvig, Philip H.
AU - Marshall, William J.
PY - 1996
Y1 - 1996
N2 - Valuing long claims has always been important for immunizing portfolios used to fund long obligations such as certain defined-benefit pension payments. Recent bond issues such as Disney's 100-year bonds emphasize the need to value long-maturity fixed claims accurately. Because of the subtleties of convexity, parameter uncertainty, and the impact of default risk, the value of long-maturity bonds is easy to underestimate. Formal analysis of the pitfalls in pricing long bonds and the correct pricing that points to investment opportunities reveals large errors that can arise from the usual intuitive arguments using the expectations hypothesis and point estimates of unknown parameters.
AB - Valuing long claims has always been important for immunizing portfolios used to fund long obligations such as certain defined-benefit pension payments. Recent bond issues such as Disney's 100-year bonds emphasize the need to value long-maturity fixed claims accurately. Because of the subtleties of convexity, parameter uncertainty, and the impact of default risk, the value of long-maturity bonds is easy to underestimate. Formal analysis of the pitfalls in pricing long bonds and the correct pricing that points to investment opportunities reveals large errors that can arise from the usual intuitive arguments using the expectations hypothesis and point estimates of unknown parameters.
UR - https://www.scopus.com/pages/publications/0346305906
U2 - 10.2469/faj.v52.n1.1964
DO - 10.2469/faj.v52.n1.1964
M3 - Article
AN - SCOPUS:0346305906
SN - 0015-198X
VL - 52
SP - 32
EP - 39
JO - Financial Analysts Journal
JF - Financial Analysts Journal
IS - 1
ER -