Research

In creating fixed-income analytic models, Andrew Kalotay Associates draws upon pioneering research published by Dr. Kalotay and his associates over more than three decades. A member of the Fixed Income Analysts Society’s Hall of Fame, Dr. Kalotay’s innovations include the ratchet bond and ratchet mortgage; the Volatility Reduction Measure (for hedge effectiveness testing under FAS 133); and the concepts of refunding efficiency as applied to both corporate and municipal bonds and mortgages. He has authored or co-authored more than 50 journal articles on a wide range of topics. 

Mortgage-Backed Securities and Mortgages

Bond Valuation and Structuring

Debt Management

  • Calling and Refunding
  • Structured Transactions and Interest Rate Derivatives
  • Tax-Driven Transactions
  • Accounting and Regulatory Finance

Municipal Finance - For Academics

Municipal Finance - For Practitioners

Wealth Management

Consumer Finance

Innovations

 

 

Recent Research

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.

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.

Hedging munis — Easier said than done

The Bond Buyer - May 28, 2019

Hedging a muni portfolio which contains bonds priced close to or below par is surprisingly complicated. First, the tax-aware effective duration of such bonds is considerably longer than indicated by conventional OAS models, reflecting the market impact of taxes on price changes not captured by such models. Additionally, tax-aware KRDs may not sum up to the effective duration, and therefore may need to be adjusted to determine the appropriate hedge ratios.

Life Without Advance Refunding

Municipal Finance Journal, Vol Volume 39 Number 03, Fall 2018

The elimination of advance refunding following the signing of the Tax Cuts and Jobs Act in December 2017 will have significant effects on the municipal market. In recent years, most municipal bonds aimed at institutional investors carried an above-market 5% coupon and had a 10-year call. The 5% NC-10 structure had wide appeal for a variety of reasons, a primary one being the bonds' eligibility for advance refunding. In the absence of advance refunding, the 5% NC-10 structure will lose much of its appeal.

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