This paper develops a dynamic programming model of the optimal refunding strategy and the corresponding value of a callable bond. The model differs from previous work on this subject primarily in that it explicitly admits the possibility of differences between the issuer's expectations of future...

Robert C. Merton is the School of Management Distinguished Professor of Finance at Massachusetts Institute of Technology, and the John and Natty McArthur University Professor Emeritus at Harvard University. Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new...

"The past three decades witnessed rapid and profound change in the investments industry as well as a financial crisis of historic magnitude. The vast expansion of financial markets during this period was due in part to innovations in securitization and credit enhancement that gave birth to new...