In Brief: Morgan Model Values Brady Bond Call Options

J.P. Morgan & Co. said it has developed an analytical model to measure the value of the call feature embedded in Brady bonds.

The new model enables investors to assess the relative value of various Brady bonds and employ more effective trading strategies, the bank said.

Michael Cembalest, head trading strategist for emerging markets at Morgan, said the value of the call options has risen along with the prices of emerging-market securities.

The call option in Brady bonds is a built-in liability for the bondholder because the bond can be called away by the issuer when yields are falling-precisely when the bondholder would be most likely to keep the high-yielding bond.

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