Corporate Bond Pricing and the Effects of Endogenous Default and Call Options

Jacoby, Gady; Shiller, Ilona

doi:10.3905/jfi.2010.20.2.080

Cited by 10 publications

(1 citation statement)

References 23 publications

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“…Similarly, the issuer delays its announcement of default on the CD compared with that on an otherwise identical noncallable bond (i.e., a D). The interactive call and default decisions are empirically consolidated by Jacoby and Shiller (2010) and Kim and Stock (2014).…”

Section: Introductionmentioning

confidence: 99%

Analyzing interactive call, default, and conversion policies for corporate bonds

Liu

Dai

Zhou

et al. 2022

Journal of Futures Markets

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This paper studies the timings of interactive call and conversion decisions made by bond issuers and holders, respectively, due to the presence of different embedded options. We develop a risk-neutral-valuation-based game option model featuring bondholder-stockholder conflicts of interest. The presence of conversion (call) options possessed by the bondholders (issuers) accelerates the call (conversion) decisions. Granting bondholders additional put options further hastens call decisions and hence conversion decisions in response to call accelerations. Our empirical studies are consistent with past call policy research and support our interactive exercise analyses that explain the rationales behind early call and conversion phenomena.

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