Period of Call Protection

In callable bonds, a period of time during which a bond may not be prematurely redeemed. Interest payments are guaranteed during the call protection period but not afterward. The bond may be redeemed at any point after the call date, which means that the issuer could return the principal to bondholders and interest payments would cease. The period of call protection exists to protect bondholders from the risk that interest rates will fall before the call date. The period of time is often called the cushion.

period of call protection

See deferment period.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

Theoretical option models (Buser, Hendershott, and Sanders (1990) and Ho and Lee (1986)), have shown that the value of a call option is determined by several factors: the volatility of interest rates, the term structure of interest rates, the schedule of call prices, the period of call protection, and the maturity of the security.

The value of a call option, however, is jointly determined by the schedule of call prices, the period of call protection, and maturity, in a complex relationship.

We have examined several areas in which the various theories are distinguishable: the subsequent rating changes of the bonds, the period of call protection, the investment activity of bond issuers, and the value of the call option.

Alternative tests of agency theories of callable corporate bonds

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