The Optimality of Call Provision Terms

• 成果类型: Article
• 署名作者: Powers, Eric
• 署名单位: University of South Carolina System; University of South Carolina Columbia
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3774
• 发表日期: 2021
• 页码: 6581-6601
• 关键词: fixed-price call; callable bond; call premium; call protection

摘要

There is substantial variation in fixed-price call provision terms-call price premium and call protection. I investigate determinants of call price, call protection, and estimated call option value. Consistent with agency theory and asymmetric information models, I find that lower credit quality and opaque issuers choose higher call premiums, longer call protection, and overall less valuable call options. Higher-quality issuers, particularly financial institutions that struggle when interest rates are low, do the opposite.