Bond Refunding with Stochastic Interest Rates

Basil A. Kalymon
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Basil A. Kalymon: University of California, Los Angeles

Management Science, 1971, vol. 18, issue 3, 171-183

Abstract: 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.

Date: 1971
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