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An analysis on the difference between bank index-linked bonds’ prices and their fair-value

Michele Leonardo Bianchi
June 2014 - n. 6
Jel codes: C10, G12, G14, G23

Index-linked bonds are structured products whose returns depend on performance of one or more financial indexes. They can be seen as the sum of a bond and an option (derivative component).The work explores some of the issues for the evaluation of the theoretical value (or fair value) of this type of bonds, providing an order of magnitude of the difference between the issue price (gross of fees) and the theoretical value (mispricing), and its evolution in time (mispricing on the secondary market).The present study has several purposes: 1) examine the market for indexlinked bonds listed on the Italian Stock Exchange (Mot); 2) describe a model for the evaluation of the theoretical value (or fair-value); 3) understand through an econometric model the determinants of mispricing on the secondary market

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