Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103417
Authors: 
Eickholt, Mathias
Entrop, Oliver
Wilkens, Marco
Year of Publication: 
2014
Series/Report no.: 
Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 14
Abstract: 
This paper is the first to analyze and value early exercises of Individual Investors in fixed-income investment products. Assuming decision and transaction costs we consider that a continuous decision-making on holding or exercising is not optimal anymore and propose a new approach to modeling exercise decisions, which endogenously determines the optimal decision strategy. Calibrating our model to a unique data set of about 880,000 early exercises in non-tradable putable bonds over a time period of 13 years indicates that Individual Investors (i) act very heterogeneously, (ii) behave as if they face significant individual transaction and decision costs, (iii) react sluggishly, and that (iv) exogenous effects such as taxes or investors´ desire for liquidity additionally influence early exercise behavior.
Subjects: 
decision strategy
decision costs
transaction costs
putable bond
JEL: 
G10
G12
G13
Document Type: 
Working Paper

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