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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
Comparing GDP Indexed Bonds to Standard Government Bonds
Author(s): Lillian Kamal, Malek Lashgari
Citation: Lillian Kamal, Malek Lashgari, (2012) "Comparing GDP Indexed Bonds to Standard Government Bonds," Vol. 13, Iss. 2, pp. 116 - 128
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper discusses the construction of a new financial instrument whose payoffs are linked to the overall performance of the U.S. economy. The idea behind this financial instrument, known as a GDP bond, has been explored by financial economists for several years. Since there is no historical data for GDP bonds in the U.S., we construct a simulation process through which the payoff function for a GDP bond could be compared with other high quality bonds during the 1947-2010 period. It is observed that the GDP bond has a superior performance to other high quality bonds in a risk return framework.
