Bond Refunding with Stochastic Interest Rates

The bond refunding problem is formulated as a multiperiod decision process in which future interest rates are determined by a Markovian stochastic process. It is assumed that a single bond is to be outstanding at a given time. Given the future requirements for debt financing, the decision maker must decide whether to keep his current bond or to refund by issuing a new bond at the current market interest rates. Over a finite planning horizon, the structure of policies which minimize expected total discounted costs is studied.

• 저널Management Science · 18(3) · 171–183
• 토픽Stochastic processes and financial applications · Finance
• DOI10.1287/mnsc.18.3.171
• 저자Basil A. Kalymon