Can anyone help me shed some lights to this question:
An analyst makes 2 statements:
1- As yield rises, the price of putable bond will fall more quickly than similar option free bond ( beyond a critical point) due to decline in value of embedded put option
2- As yield falls, the price of putable bond will increase more quickly than similar option free bond ( beyond a critical point) due to the increase in value of embedded put option.
DOes this hold true for put option embedded in bonds: As yield rise, put option decrease and vice versa, or this only applies to option on stock?
Thanks作者: rkapoor 时间: 2011-7-13 16:41
Both those statements are incorrect.
When yields rise, the price of the bond will fall but the put will rise. so the overall price fall will be less than a regular bond.
When yields fall, the bond price will rise but the value of the put will fall. So the overall price increase is less than a regular bond.作者: sanbaidaniella 时间: 2012-8-14 00:15
