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Bond Refunding with Stochastic Interest Rates

Author

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  • Basil A. Kalymon

    (University of California, Los Angeles)

Abstract

The bond refunding problem is formulated as a multiperiod decision process in which future interest rates are determined by a Markovian stochastic process. It is assumed that a single bond is to be outstanding at a given time. Given the future requirements for debt financing, the decision maker must decide whether to keep his current bond or to refund by issuing a new bond at the current market interest rates. Over a finite planning horizon, the structure of policies which minimize expected total discounted costs is studied.

Suggested Citation

  • Basil A. Kalymon, 1971. "Bond Refunding with Stochastic Interest Rates," Management Science, INFORMS, vol. 18(3), pages 171-183, November.
    • Handle: RePEc:inm:ormnsc:v:18:y:1971:i:3:p:171-183
    DOI: 10.1287/mnsc.18.3.171
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    Cited by:

    1. Zvi Bodie & Benjamin M. Friedman, 1977. "Heterogeneous-Expectations Model of the Value of Bonds Bearing Call Options," NBER Working Papers 0218, National Bureau of Economic Research, Inc.
    2. Raymond C. Chiang & M. P. Narayanan, 1991. "Bond Refunding In Efficient Markets: A Dynamic Analysis With Tax Effects," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(4), pages 287-302, December.

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