Question: What are the two drawbacks of the traditional approach to
What are the two drawbacks of the traditional approach to the valuation of bonds with embedded options?
Answer to relevant QuestionsExplain why you agree or disagree with the following statement: “An investor should be unwilling to pay more than the call price for a bond that is likely to be called.” Answer the below questions. (a) What is meant by the option-adjusted spread? (b) What is the option-adjusted spread relative to? What is negative convexity? Suppose that a support bond is being analyzed using the Monte Carlo simulation methodology. The theoretical value using 1,500 interest-rate paths is 88. The range for the path present values is a low of 50 and a high of 115. ...What are the limitations of the option-adjusted spread measure?
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