Figure 1
The image contains three panels of graphs. Panel (a) includes two graphs: a line graph on the left showing issuance price as a function of the greenium for five coupon rates, and a line graph on the right showing expected discounted cost as a function of default probability for four levels of compliance cost. Panel (b) includes two line graphs: one on the left showing KPI-indexed coupon over the bond's ten-year life for three indexation intensities without contractual bounds, and one on the right showing KPI-indexed coupon with a floor at 50 percent and a cap at 150 percent of the base coupon. Panel (c) features a heatmap of the implicit default threshold over the coupon rate and greenium plane, with contour lines and a reference calibration mark. The graphs illustrate the sensitivity of issuance price and budgetary cost to various financial parameters and the redistribution of cash flows over the bond's life depending on the indexation parameter.Financial structure of the Lemur Bond. Panel (a) documents the sensitivity of the issuance price and budgetary cost to the greenium and to the default risk, respectively. Panel (b) illustrates how the KPI-linked coupon formula re-distributes cash flows over the bond’s life depending on the intensity of the indexation parameter. Panel (c) maps the region of the (c, η) space that keeps the instrument financially viable from the sovereign’s perspective, under the reference maturity and risk-free rate