End of Chapter Ques 8 for Reading 66 claims that a bond can have negative convexity because it is "high coupon".
That doesn't seem right. However large the coupons may be, a option-free bond is just a bunch of Zero Coupons, each of which has positive convexity, thus resulting in positive convexity for the entire bond.
Bonds with embedded options like callable bonds may have negative convexity, but not option-free bonds.
Seems like the textbook is wrong, any opinions?
NC作者: leadcfa 时间: 2011-7-11 18:36
beatthecfa!
Thanks for the explanation. I was wondering about that question myself.
I hope you plan to stick around till May at least.作者: cyber21 时间: 2011-7-11 18:36
Woww beatthecfa.. That's one great explanation.. You know you are helping me out even when you are not around
