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Refunding efficiency: a generalized approach


  • Andrew J. Kalotay
  • Deane Yang
  • Frank J. Fabozzi


Refunding efficiency, a measure of the optimality of a refunding decision, is widely used in the call exercise decision for agency, corporate and municipal bonds. The original definition of efficiency assumes that the refunding bond is optionless. However, in practice, the refunding bond is often callable. We show that the commonly used method of incorporating the value of the refunding bond's call option into the efficiency calculation can lead to paradoxical results, and then suggest a new definition of refunding efficiency that overcomes this problem.

Suggested Citation

  • Andrew J. Kalotay & Deane Yang & Frank J. Fabozzi, 2007. "Refunding efficiency: a generalized approach," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(3), pages 141-146.
  • Handle: RePEc:taf:apfelt:v:3:y:2007:i:3:p:141-146
    DOI: 10.1080/17446540600771076

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    References listed on IDEAS

    1. W. M. Boyce & A. J. Kalotay, 1979. "Optimum Bond Calling and Refunding," Interfaces, INFORMS, vol. 9(5), pages 36-49, November.
    2. John D. Finnerty, & Douglas R. Emery,, 2001. "Debt Management:: A Practitioner's Guide," OUP Catalogue, Oxford University Press, number 9780875846170.
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    Cited by:

    1. Andrew Ang & Richard C. Green & Francis A. Longstaff & Yuhang Xing, 2017. "Advance Refundings of Municipal Bonds," Journal of Finance, American Finance Association, vol. 72(4), pages 1645-1682, August.

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