wake2000

JSShekawat Wrote:
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> Trying to wrap my mind around callable bonds.
> Where am I wrong?
>
> 1.) If I'm holding a callable bond, I'm short a
> call option so the value of the bond = Value of
> Non-Callable - Value of Call option. So a callable
> bond will always be cheaper than a non-callable.
>
> 2) As rates fall a n-c will outperform a c because
> of the embedded call option.
>
> 3) As rates rise -:
>
> 1. From below coupon up the c expresses convexity
> and will outperform the n-c.
> 2. From above coupon to higher the call option is
> o-f-t-m and both bond behave like n-c.
>
> Grade me!

Wow talk about overthinking a simple concept.