RT Journal Article SR Electronic T1 Corporate Bond Pricing and the Effects of Endogenous Default and Call Options JF The Journal of Fixed Income FD Institutional Investor Journals SP 80 OP 100 DO 10.3905/jfi.2010.20.2.080 VO 20 IS 2 A1 Gady Jacoby A1 Ilona Shiller YR 2010 UL https://pm-research.com/content/20/2/80.abstract AB Recent structural models for valuing callable corporate bonds show that both callability and default options have important implications for the interest-rate sensitivity of yield spreads and the bond duration. Special attention is given to the interaction between the two risks. In this article, the authors test the main implications of these models. Specifically, they examine the interest-rate elasticity of the call spread and that of the default spread, allowing for interaction between both spreads. Furthermore, they examine the impact of both risks and their interaction on the effective duration of corporate bonds. They also test theoretical predictions regarding corporate bond sensitivity to firm value. Their findings support the predictions of the theory for bonds carrying a standard fixed-price call option and those carrying the newer make-whole option.TOPICS: Fixed-income portfolio management, credit risk management, statistical methods, developed markets [Canada, US]