Analyzing interactive call, default, and conversion policies for corporate bonds

Liang Chih Liu*, Tian Shyr Dai, Lei Zhou, Hao Han Chang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


This paper studies the timings of interactive call and conversion decisions made by bond issuers and holders, respectively, due to the presence of different embedded options. We develop a risk-neutral-valuation-based game option model featuring bondholder–stockholder conflicts of interest. The presence of conversion (call) options possessed by the bondholders (issuers) accelerates the call (conversion) decisions. Granting bondholders additional put options further hastens call decisions and hence conversion decisions in response to call accelerations. Our empirical studies are consistent with past call policy research and support our interactive exercise analyses that explain the rationales behind early call and conversion phenomena.

Original languageEnglish
Pages (from-to)1597-1638
Number of pages42
JournalJournal of Futures Markets
Issue number8
StatePublished - Aug 2022


  • call policy
  • conversion policy
  • corporate bond with embedded options
  • game option
  • risk-neutral valuation


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