Bond Valuation and Structuring

The Right Discount Rate Can Save Your Life

Financial Engineering News (January/February 2007)

Municipalities should value tax-exempt liabilities using their taxable rates

When It’s Time to Get off the Tree

Financial Engineering News (November/December 2006)

Some Bonds Are Worth More Dead than Alive

Financial Engineering News (September/October 2006)

For an issuer, the choice between an institutional bond offering and a similar-maturity retail deal with an “estate put” presents special challenges.

The Volatility Reduction Measure

Derivatives Strategy (March 2001)

An Andrew Kalotay Associates innovation, the VRM pinpoints the degree to which a hedge offsets the volatility of a particular asset, liability or portfolio. Retrospective testing on historical data and prospective testing through Monte Carlo simulation can be combined into a single hedge effectiveness score by properly weighting the inputs into the VRM formula.

Subsidized Borrowing and The Discount Rate: The Case of Municipal Capital Budgeting and Financial Management

Municipal Finance Journal (Winter 1999)

Municipalities should value tax-exempt liabilities using their taxable rates

The Challenge of Managing Credit Spreads: New Tools on the Horizon

Journal of Applied Corporate Finance (Fall 1999)

While corporate credit spreads vary just as underlying Treasury yields do, they are harder for corporate treasurers and other market participants to hedge against. Standard & Poor’s credit indices derived from market prices of selected liquid bonds offered a means to revolutionize the mangement of credit spreads.

Everything You Always Wanted to Know About Ratchet Bonds

BondWeek (July 13 1998)

The Tennessee Valley Authority’s putable automatic rate-reset securities (PARRS) issued in 1998 were the first-ever ratchet bonds – a revolutionary structure that captures virtually all the advantages of conventional bonds for both borrowers and investors, while eliminating the disadvantages. Andrew Kalotay first proposed the ratchet bond concept to TVA and worked with the agency to structure the PARRS security.

Mickey Mouse Analysis

F&T Risk Advisor (December 1993)

The reams of misconceived media commentary inspired by Walt Disney Co.’s sale of a 100-year bond in 1993 were like cartoon punches, full of exclamation points but lacking real power.

How to Succeed in Derivatives without Really Buying

Journal of Applied Corporate Finance (Fall 1993)

Understanding the derivatives market can help a treasurer distinguish between good and bad pricing in the cash market. By using a synthetic benchmark for comparison, Andrew Kalotay Associates persuaded Niagara Mohawk to reject a seemingly attractive refunding transaction that would have squandered roughly $1.5 million in potential cash savings.

A Model for Valuing Bonds and Embedded Options

Financial Analysts Journal (May/June 1993)

This seminal article explains in concrete detail and in layman’s terms how to compute a fair value for any bond, including callables and other structures with one or more embedded options. The technique requires building a binomial interest rate tree that models the evolution of interest rates and the yield curve.

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