Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Expected volatility is a major factor that affects the value of an option. Expected volatility of an option on bond is referred to as 'expected yield volatility'. The value of an option is directly related to the expected yield volatility. In other words, greater the expected yield volatility, greater would be the value of the option. Let us see how this works for a callable bond.
The price of a callable bond can be determined as follows:
Price of callable bond = Price of option-free bond - Price of embedded call option
Let us assume that all other factors except expected yield volatility are constant. Now if the expected yield volatility increases the price of the call option will also increase. Hence, the price of the callable bond would decrease.
In case of a putable bond, the price can be decomposed into the following two elements:
Price of putable bond = Price of option-free bond + Price of embedded option
A decrease in expected yield volatility would result in a decline in the price of the embedded put option. Therefore, the price of a putable bond would also decrease.
Volatility risk can be defined as the risk that the price of a bond with an embedded option will decrease when expected yield volatility changes.
Observed yield on strips can be used to construct an actual spot rate curve, but it is not free from drawbacks. There are some problems with this; first, the liqu
what business organization do you preffer ? service concern,trading concern or manufacturing concern
Elements of Financial Management: Financial management is the term given to the overall management of an organisation's finances. It includes a number of elements, or systems,
Meaning merits nd demerits of modern approch of financial management
Q. What is risk adjusted discount rate? The risk adjusted discount rate includes two rates viz (i) Risk-free rate: - Risk free rate is the usual rate or the usual discount r
questioner based on this topic
What are the Internal audits Internal audit is seen as independent from management who are devising and implementing internal controls and must be able to provide advice on in
The key parameters taken into account while rating a debt instrument are as follows: 1. Industry Evaluation - This involves an evaluation of the
How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method? We calculate the reimbursement period for
1. Why do the banks borrow funds, besides accepting deposits? Discuss in detail the various sources from where banks can borrow funds within India.
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd