An Evaluation of Swedish Municipal Borrowing via Nikkei-linked Loans

• Main Authors: Constantin, Robert, Gerzic, Denis
• Format: Others
• Language: English
• Published: Linköpings universitet, Produktionsekonomi 2018
• Subjects: Municipal borrowing; Nikkei-linked loans; Multi-curve framework; Discounting curves; Forward curves; CVA; Monte Carlo simulation; Structured bond; Black and Scholes PDE; Structured swap; Mathematics; Matematik
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:liu:diva-153259

In this master thesis, we compare three different types of funding alternatives from a Swedish municipality's point of view, with the main focus on analysing a Nikkei-linked loan. We do this by analysing the resulting interest rate and the expected exposures, taking collateral into consideration. We conclude, with certainty, that there are many alternatives for funding and that they each need to be analysed and compared on many levels to be able to make a correct decision as to which ones to choose. An important part of this is to consider the implications of the newest regulations and risk exposure, as it might greatly influence the final price for contracts. Between the cases that we considered, the SEK bond was the one with the lowest resulting spread, and the one which is the simplest considering the collateral involved. While other alternatives might be better depending on how profitable it is for the municipality to receive collateral, the SEK bond is the most transparent one and with least risk involved.