"Term Structure and the Non-Cash Values in Bonds"
First Boston Working Paper Series,
Publication type: Working paper
Research Archive Topic: Capital Markets and Investments
Market frictions enable bond prices to impound values other than the present value of their cash flows. When the term structure of interest rates is estimated with particular care, using a linear programming approach, one can uncover and quantify such non-cash values. This provides some answers to questions about tax clienteles, the representative bond investor, the value of bond liquidity, apparently negative call option values and other anomalies.
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