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Optimum Bond Calling and Refunding

Author

Listed:
  • W. M. Boyce

    (Bell Laboratories, Murray Hill, New Jersey)

  • A. J. Kalotay

    (Dillon, Read and Co., New York, New York)

Abstract

Long-term corporate bonds have traditionally been issued with a call option , whereby the issuing company reserves the right to call the bond, that is, to redeem or buy back the bond prior to maturity. Usually the purpose of calling the bond is to be able to refund it, that is, replace it with one having a lower interest rate, or coupon . During 1976--77, when interest rates had dropped significantly from the rates of 1969--70 and 1974--75, Bell System companies called or refunded over $2 billion of long-term debt. This paper describes how analytical techniques developed at Bell Labs and AT&T played a significant role in these refundings.

Suggested Citation

  • W. M. Boyce & A. J. Kalotay, 1979. "Optimum Bond Calling and Refunding," Interfaces, INFORMS, vol. 9(5), pages 36-49, November.
    • Handle: RePEc:inm:orinte:v:9:y:1979:i:5:p:36-49
    DOI: 10.1287/inte.9.5.36
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    Citations

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    Cited by:

    1. Andrew Kalotay & Deane Yang & Frank J. Fabozzi, 2004. "An Option-Theoretic Prepayment Model For Mortgages And Mortgage-Backed Securities," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 7(08), pages 949-978.
    2. Martin J. Luby & Peter Orr & Richard Ryffel, 2021. "Direct Versus Indirect Federal Bond Subsidies: New Evidence on Cost of Capital," Public Budgeting & Finance, Wiley Blackwell, vol. 41(1), pages 76-120, March.
    3. Ms. Magdalena Polan & Parmeshwar Ramlogan & Mr. Carlos I. Medeiros, 2007. "A Primer on Sovereign Debt Buybacks and Swaps," IMF Working Papers 2007/058, International Monetary Fund.

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