O'Reilly logo

Debt Markets and Analysis, + Website by R. Stafford Johnson

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 13

The Valuation of Bonds with Embedded Options and Debt Options—The Binomial Interest Rate Tree

Introduction

Many bonds have a call feature giving the issuer the right to buy back the bond from the bondholder. In addition to callable bonds, there are also putable bonds, giving the bondholder the right to sell the bond back to the issuer, sinking fund bonds in which the issuer has the right to call the bond or buy it back in the market, mortgage- and asset-backed securities with prepayment options on the underlying collateral, and convertible bonds that give the bondholder the right to convert the bond into specified number of shares of stock.

The inclusion of option features in a bond contract makes the evaluation of such bonds more ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required