Auction Rate Securities
An auction rate security (ARS) typically refers to a debt instrument (corporate or municipal bonds) with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen.

Fair Value Drivers
  • Time remaining till next auction
  • Changes in market’s required margin
  • Credit spread
  • Call provisions
  • Liquidity risk
  • Terms of collar

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