Thus, with state-dependent marginal investor tax rates and the absence of any other advantages associated with callable bonds, noncallable
bonds will dominate callable bonds.
In both the frictionless and the more realistic environment, we parameterize our model using contemporaneous risk-free yield curve information as well as firm- and bond-specific characteristics at origination for a sample of over 3,000 noncallable
and make-whole call bonds issued between 1995 and 2004.
A par swap (with beginning value of zero) can be replicated by a portfolio of noncallable
bonds with the same par value and maturity as the swap.
However, convertible bonds are often noncallable
for a significant period of time following the issue.
This price-process model is identical to the one used by Murphy (1991), except that implied volatility is used to estimate the variation in noncallable
debt values whereas historical variance was used in the 1991 study because implied volatility figures did not exist in the pre-1984 portion of that study's sample.
Perhaps the best way to understand the impact of including a call option on a municipal bond is to look at the value of a callable bond as if it were the value of a noncallable
bond minus the value of the embedded call.
Because the callability feature introduces bias in the risk premium of a subordinated debt, this study used only noncallable
debt risk premium.
convertible preferred stock may also qualify as an employer security if it is convertible at any time into common stock described above at a reasonable price.
For example, several BABs were structured as noncallable
bonds with a single term or bullet maturity, rather than the serial maturity structure traditionally used in tax-exempt bonds.
Such issues are noncallable
for a specified period.
These are noncallable
securities issued on a regular basis in larger sizes than the agencies' typical issues.
If interest rates fall, noncallable
zeroes experience additional price appreciation compared to noncallable