TY - JOUR
T1 - Refunding efficiency
T2 - A generalized approach
AU - Kalotay, Andrew J.
AU - Yang, Deane
AU - Fabozzi, Frank J.
PY - 2007/5
Y1 - 2007/5
N2 - 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.
AB - 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.
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U2 - 10.1080/17446540600771076
DO - 10.1080/17446540600771076
M3 - Article
AN - SCOPUS:34248577716
SN - 1744-6546
VL - 3
SP - 141
EP - 146
JO - Applied Financial Economics Letters
JF - Applied Financial Economics Letters
IS - 3
ER -