Callable Bonds, Interest-Rate Risk, and the Supply Side of Hedging

2004 ◽  
Author(s):  
Levent Guntay ◽  
Nagpurnanand R. Prabhala ◽  
Haluk Unal
Keyword(s):  
Interest Rate ◽  
Interest Rate Risk ◽  
Supply Side ◽  
Callable Bonds ◽  
Rate Risk

scholarly journals Why Callable Bonds Are not Called When the Market Price Reaches the Call Price: A Duration Argument

2015 ◽  
Vol 11 (1) ◽  
pp. 90
Author(s):  
Samih Antoine Azar
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Financial Risk ◽  
Market Price ◽  
Interest Rate Risk ◽  
Underlying Assumption ◽  
Callable Bonds ◽  
Rate Risk ◽  
Lower Interest Rate ◽  
First Time

It is a fact that firms do not call callable bonds when bond prices reach for the first time the call price. This paper provides an original explanation for this behavior by resorting to duration analysis. It is known that, ceteris paribus, a bond with a higher coupon, or a higher yield, has a lower duration that a bond with a lower coupon, or a lower yield. This implies that the bond that is to be called has a lower duration than the bond that replaces it. A lower duration signifies a lower interest rate risk. The firm with a callable bond will wait for market interest rates to fall further in order to equalize durations and bear the same risk. The underlying assumption is that by equalizing durations the firm keeps facing the same financial risk. In this case, it is the same amount of interest rate risk. Consequently, there are no changes in the capital structure, no redistribution effects on other debt claims, and financial leverage is unaffected. The paper provides illustrations on this active law by considering four callable bonds, with different remaining maturities, and each one with a set of two different call prices.

Yield Elasticity: A New, Objective Measure of Interest-Rate Risk

CFA Digest ◽  
2007 ◽  
Vol 37 (4) ◽  
pp. 27-28
Author(s):  
Brian A. Maris
Keyword(s):  
Interest Rate ◽  
Objective Measure ◽  
Interest Rate Risk ◽  
Rate Risk

Balance-sheet interest rate risk: a weighted Lp approach

2018 ◽  
Vol 21 (1) ◽  
pp. 91-104 ◽  
Author(s):  
Leslaw Gajek ◽  
Elzbieta Krajewska
Keyword(s):  
Interest Rate ◽  
Balance Sheet ◽  
Interest Rate Risk ◽  
Rate Risk

Liquidity and Interest Rate Risk of Life Insurers: Sources and Mitigation

2016 ◽  
Author(s):  
Mark Feodoria ◽  
Till FFrstemann
Keyword(s):  
Interest Rate ◽  
Interest Rate Risk ◽  
Life Insurers ◽  
Rate Risk

Scenario Generation for Long-Run Interest Rate Risk Assessment

2016 ◽  
Author(s):  
Robert F. Engle ◽  
Guillaume Roussellet
Keyword(s):  
Risk Assessment ◽  
Interest Rate ◽  
Interest Rate Risk ◽  
Scenario Generation ◽  
Rate Risk ◽  
Long Run

How Do Banks and Households Manage Interest Rate Risk? Evidence from Mortgage Applications and Bankss Responses

2018 ◽  
Author(s):  
Christoph Basten ◽  
Benjamin Guin ◽  
Catherine Koch
Keyword(s):  
Interest Rate ◽  
Interest Rate Risk ◽  
Rate Risk
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