period of call protection

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

References in periodicals archive ?
The firm, then, sets the option value on its bond by choosing a call price, the period of call protection (the first call date), and the bond's maturity.
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.