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Call and Sinking Fund Valuation and Risk Measurement: Part 1
Sep 1, 1989
This article describes a valuation technique for callable bonds and sinking funds. In this article, we do not consider refinancing costs; however (1) their effect on the bond price is small, and (2) we can make a good first order approximation as to their effect on price without having to consider them in the estimation process. In Part II, which will appear in next month's Barra U.S. Newsletter, we will explain how the risk associated with calls and sinking funds can be estimated.