Refunding efficiency: A generalized approach

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

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish (US)
Pages (from-to)141-146
Number of pages6
JournalApplied Financial Economics Letters
Issue number3
StatePublished - May 2007

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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