An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom

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dc.contributor.advisorHigh, Hughen_ZA
dc.contributor.authorM'pasi, Abrahams Mutedien_ZA
dc.date.accessioned2016-02-29T12:03:07Z
dc.date.available2016-02-29T12:03:07Z
dc.date.issued1995en_ZA
dc.descriptionBibliography: pages 78-81.en_ZA
dc.description.abstractIn the late 1930s, the Great Depression and its consequences led to the U.S federal government's intervention in credit assistance and insurance programmes. The main reason for this intervention was that there was a general desire to rescue individuals and businesses which were unable to repay their debts when due. Considerable debate has focused on the determination of the magnitude of the government liabilities resulting from guaranteed loan re-payments. Today, most nations, including South Africa, employ such government guarantees, but they are often improperly valued; that is, one has no idea whether such guarantees are 'good ' or 'bad' policy tools. This paper illustrates how Put option pricing models may be used to estimate the 'real' cost to the South African government of a loan guarantee to Eskom, which is investing a large hydroelectric project in Mozambique, hypothetically assuming that Eskom has been privatized. While the paper recognises the importance of the insurance premium which could be charged by the government for its loan guarantee, the results under the hypothetical case show that the Eskom is able to readily repay the promised payment and, thus, the loan guarantee provides value to Eskom's owners. In this regard, one can argue that parties involved in such a project, such as the South African government, Eskom and the European agencies may benefit from the loan guarantee programme. Thus, a loan guarantee programme may be seen as a 'good' policy tool to resolve conflicts between lenders and borrowers, to encourage investment and to meet a broader public interest.en_ZA
dc.identifier.apacitationM'pasi, A. M. (1995). <i>An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Economics. Retrieved from http://hdl.handle.net/11427/17348en_ZA
dc.identifier.chicagocitationM'pasi, Abrahams Mutedi. <i>"An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Economics, 1995. http://hdl.handle.net/11427/17348en_ZA
dc.identifier.citationM'pasi, A. 1995. An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - M'pasi, Abrahams Mutedi AB - In the late 1930s, the Great Depression and its consequences led to the U.S federal government's intervention in credit assistance and insurance programmes. The main reason for this intervention was that there was a general desire to rescue individuals and businesses which were unable to repay their debts when due. Considerable debate has focused on the determination of the magnitude of the government liabilities resulting from guaranteed loan re-payments. Today, most nations, including South Africa, employ such government guarantees, but they are often improperly valued; that is, one has no idea whether such guarantees are 'good ' or 'bad' policy tools. This paper illustrates how Put option pricing models may be used to estimate the 'real' cost to the South African government of a loan guarantee to Eskom, which is investing a large hydroelectric project in Mozambique, hypothetically assuming that Eskom has been privatized. While the paper recognises the importance of the insurance premium which could be charged by the government for its loan guarantee, the results under the hypothetical case show that the Eskom is able to readily repay the promised payment and, thus, the loan guarantee provides value to Eskom's owners. In this regard, one can argue that parties involved in such a project, such as the South African government, Eskom and the European agencies may benefit from the loan guarantee programme. Thus, a loan guarantee programme may be seen as a 'good' policy tool to resolve conflicts between lenders and borrowers, to encourage investment and to meet a broader public interest. DA - 1995 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 1995 T1 - An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom TI - An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom UR - http://hdl.handle.net/11427/17348 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/17348
dc.identifier.vancouvercitationM'pasi AM. An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Economics, 1995 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/17348en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentSchool of Economicsen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherEconomicsen_ZA
dc.titleAn application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskomen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMComen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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