I was studying putable bond and callable bond on my own, there is an exercise question that was a little confusing to me: enter image description here

I understand what the answer explains, but I am confused that, is a bond "that is putable at t=4" equal to a 4-year bond that is putable? Statement 1 says, (1) is a bond putable at t=4, I thought it meant the bond can only be put at or after t=4. Statement (2) is a 4 year bond that is callable. According to the answer, with put-call parity, the value of the bond in statement (2) is equal to that of a 4 year bond that is putable. However, does that mean the bond can be put any time within 4 years?

If so, how can the value of statement (1) and (2) be the same? Or is it that the time to put the bond does not matter when valuing a bond?


1 Answer 1


Aren’t both statements incorrect? In a puttable bond, the investor is LONG the put. In a callable bond , the investor is SHORT the call. It may be true that put price = call price for ATM options, but being long a put is always better than being short a call.

  • $\begingroup$ Thank you I will double check with the publisher. $\endgroup$
    – Betty
    Commented Nov 11, 2019 at 0:57
  • 2
    $\begingroup$ Ask the publisher for a refund... $\endgroup$
    – nbbo2
    Commented Nov 11, 2019 at 5:27

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