Issuances of perpetual risky debt are often motivated by capital requirements for financial institutions. However, observed market practice indicates that actual maturity equals first possible call date. We analyze callable risky perpetual debt including an initial protection period before the debt may be called. To this end we develop European barrier option pricing formulas in a Black and Cox (1976) environment.The total market value of debt including the call option is expressed as a portfolio of barrier options and perpetual debt with a time dependent barrier. We analyze how the issuer’s optimal bankruptcy decision is affected by the existence of the call option using closed-form approximations. In accordance with intuition, our model quantifies the increased coupon and the decreased bankruptcy level caused by the embedded option. We show that the option will be exercised even at fairly low asset levels at the time of expiry.
展开▼
机译：永久性风险债券的发行通常是由金融机构的资本要求引起的。但是，观察到的市场惯例表明，实际期限等于第一个可能的赎回日。我们分析可赎回的永续债，包括可赎回债权之前的初始保护期。为此，我们在Black and Cox（1976）环境中开发了欧洲障碍期权定价公式。债务的总市值（包括看涨期权）被表示为障碍期权和具有时间依赖障碍的永续债权的组合。我们使用封闭式近似分析来分析发行人的最佳破产决定如何受到看涨期权的影响。根据直觉，我们的模型量化了由嵌入式期权导致的息票增加和破产程度降低。我们显示，即使到期时资产水平较低，该期权也将被行使。
展开▼
