Call options, points, and dominance restrictions on debt contracts

• 成果类型: Article
• 署名作者: Dunn, KB; Spatt, CS
• 署名单位: Carnegie Mellon University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/0022-1082.00190
• 发表日期: 1999
• 页码: 2317-2337
• 关键词: interest-rates; valuation

摘要

We analyze the impact of a contract's length, callability, amortization, and original discount by arbitrage methods. Among instruments that are callable without penalty, longer instruments command a higher interest rate because the borrower possesses the option of repaying relatively more slowly. However, the rate on longer self-amortizing loans cannot be substantially larger than for shorter ones because the payments decrease with contract length. Bounds on the trade-off between points and rate for callable debt are characterized using the trade-off for noncallable debt and the property that the value of the prepayment option increases with the loan's interest rate.