Reduced-form valuation of callable corporate bonds: Theory and evidence

• 成果类型: Article
• 署名作者: Jarrow, Robert; Li, Haitao; Liu, Sheen; Wu, Chunchi
• 署名单位: University of Michigan System; University of Michigan; Cornell University; Washington State University; University of Missouri System; University of Missouri Columbia
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2009.10.001
• 发表日期: 2010
• 页码: 227-248
• 关键词: Callable bond; Reduced-form model; affine models

摘要

We develop a reduced-form approach for valuing callable corporate bonds by characterizing the call probability via an intensity process. Asymmetric information and market frictions justify the existence of a call-arrival intensity from the market's perspective. Our approach both extends the reduced-form model of Duffle and Singleton (1999) for defaultable bonds to callable bonds and captures some important differences between call and default decisions. A comprehensive empirical analysis of callable bonds using both our model and the more traditional American option approach for valuing callable bonds shows that the reduced-form model fits callable bond prices well and that it outperforms the traditional approach both in- and out-of-sample. (C) 2009 Elsevier B.V. All rights reserved.