标题: Par, Callables, and Interest rate Movements [打印本页] 作者: John10 时间: 2011-7-11 19:36 标题: Par, Callables, and Interest rate Movements
I just want to verify my logic...
Callables have negative convexity in a falling rate environment where the interest rate drops below the coupon.
This would make it negatively convex ABOVE par right?
Prices should be greater than par when rates are lower than the coupon and lower than par when rates are higher than the coupon right?
I know this is L1, but I'm just confirming my logic...作者: mar350 时间: 2011-7-11 19:36
No comment?作者: skycfa 时间: 2011-7-11 19:36
Ur right. Mbs for example will experience positive convexity if they are trading below par.作者: Roflnadal 时间: 2011-7-11 19:36
You are right.
Straight bonds rise faster when yields fall and this rate is higher than the price fall rate when yields rise. For MBS, the rate of price rise will reduce as yields fall; a phenomenon called yield compression.
