O'Reilly logo

The Handbook of Fixed Income Securities, Eighth Edition, 8th Edition by Steven V. Mann, Frank J. Fabozzi

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

CHAPTERFORTYVALUATION OF BONDS WITH EMBEDDED OPTIONS

FRANK J. FABOZZI, PH.D., CFA, CPA

Professor of FinanceEDHEC Business School

ANDREW KALOTAY, PH.D.

PresidentAndrew Kalotay Associates

MICHAEL DORIGAN, PH.D.

Director & Senior Quantitative AnalystPNC Capital Advisors LLC

The complication in building a model to value bonds with embedded options and option-type derivatives is that cash flows will depend on interest rates in the future. Academicians and practitioners have attempted to capture this interest rate uncertainty through various models, often designed as single or multi-factor models. These models attempt to capture the stochastic behavior of rates.

In practice, these elegant mathematical models must be converted to numeric applications. ...

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