Puttable bond option net

Option puttable bond net

The repurchase price is set at the time of issue, and is usually par value. Of course, the special advantages puttxble put bonds mean that some yield must be sacrificed.This type of bond optiln also known as a multimaturity bond, an option tender bond, a variable rate puttable bond option net obligation (VRDO). Typically, this price is relatively low, so the option to put acts merely as a type of insurance for investors, sweetening the security.

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The bond option is in-the-money if the bind is profitable. If not, the holder does not have to trade the bond and only loses the initial premium.American options can be exercised at or before expiry. This greater flexibility means that American bond optin are more expensive than their European counterparts.A callable bond allows the bond issuer to buy back the bonds before maturity.

In this paper the single-factor version of the Cox, Ingersoll and Ross model is used to determine the equilibrium value of CTOs at issue. puttagle The simulation of the puttable bond option net of changes in their features provides useful information on the optimal design of CTOs.Suggested Citation: Suggested CitationBarone, Emilio and Cuoco, Domenico, The Valuation of Puttable Bonds: An Application of the Cox, Ingersoll and Ross Model to Italian Treasury Option Certificates (June 1989).

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Puttable bond option net

Puttable bond option net

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