Questions tagged [callable-bonds]
The callable-bonds tag has no usage guidance.
26
questions
0
votes
1
answer
117
views
Pricing fixed rate redeemable bond
A redeemable fixed rate bond has a yearly payment schedule $T_1,\ldots,T_m,\ldots,T_n$ : at each $T_i$ is paid the coupon $c$ (I assume the year fraction is approximativately $1$) (and a notional $X$ ...
- 199
1
vote
0
answers
145
views
Call probability of a callable swap
For one call date,
The call probability is just the probability that the swap rate for the remaining life of the swap is below the strike rate. This is easily obtainable in a normal vol model, it is :
...
- 11
0
votes
0
answers
39
views
Why do bonds with a shorter next call dates have shorter extension risk?
I was reading a research article and I'm not really understanding why. Is it to do with the option premium being priced in at the beginning?
- 51
1
vote
0
answers
73
views
Tree Pricing FRN Implementation
When pricing a bond via a short rate model on a tree, it seems natural to include intermediate time steps in addition to those corresponding to cashflow dates (i.e. for bonds with American style ...
- 11
0
votes
1
answer
253
views
Z spread for callable bond
I see many definitions online for z spread with formulas written for a bond, how do they change if the bond is callable? Or is z spread calculated to maturity in this case?
- 479
1
vote
1
answer
136
views
How to spot optimal exercise level of issuer-callable bonds with autocallable bonds call level?
I'm looking for a bit more background on a question that came up here: Our traders use some sort of Longstaff-Schwartz to calculate the optimal point when to call an issuer-callable bond.
My question ...
- 582
2
votes
0
answers
104
views
Back testing fixed income for bond portfolio management
When doing back test trying to replicate a paper, how do you handle bonds that are maturing in an index?
Say I was trying to create a strategy, how do I account for bonds that mature in terms of ...
1
vote
1
answer
104
views
taxonomy of bond/fixed income exotic coupon features?
I suppose this is essentially a literature recommendation.
I am looking for a list of exotic/nonlinear/complex features that can be included with bonds/loans/fixed income products.
A (somewhat ...
- 111
0
votes
1
answer
80
views
Duration and convexity of an open term loan/bond!
Imagine an open term loan with monthly interest payments of [x]% and the principle due when the loan is closed. Both the lender can call the loan, and the borrower can return the loan (with no penalty)...
- 1
0
votes
1
answer
163
views
Yield to call on American style callable bond
(Assuming current bond price is quoted and maturity, par value, strike price all known..)
I was wondering how do we calculate yield to call on American style callable bonds after the call date has ...
- 55
0
votes
0
answers
68
views
callable bonds with FDM
I am thinking of implementing a model to price callable bonds on a finite difference grid. I wonder how the Price to worst yield model will relate to it in terms of risks(or should do). What I expect ...
- 479
0
votes
0
answers
39
views
option value for yield to worst model
I would like to understand if there is a way to imply the option value from the bond price for a callable bond. I understand the mechanics of calculation of the worst yield in the presence of many ...
- 479
0
votes
1
answer
331
views
Callable Corporate Bonds: Why Issue a Callable Bond That Has a First Call Date <6 months to Final Maturity?
My understanding is that firms typically issue callable bonds to benefit from possible refinancing in a lower interest rate environment. What, then, is the point of issuing a bond, say, today (06/30/...
- 1
1
vote
1
answer
183
views
Why do a callable bond always have higher yields?
In an american callable bond there is an expectation for the issuer to prepay its debt prior to maturity. I understand that this reduces it's value and therefore, higher yield.
But another way to ...
0
votes
1
answer
188
views
Risk measurement of multicallable bonds
Assume you have bought a multicallable bond where the issuer has the right to redeem the notional at various dates, e.g. a $10$ yr maturity, $5$% coupon yearly and each year one call date. Next, ...
- 183
2
votes
0
answers
517
views
how do traders typically hedge a callable zero coupon bond?
i've seen termsheets of callable accreting notional swaps where the accretion rate equals the fixed coupon rate. apparently these are used to hedge callable zcb's. but it doesnt seem to make sense! ...
- 766
1
vote
2
answers
146
views
What are clean price and accrual of a called bond
I found that after a bond is called (after the call effective date), BBG still shows bond prices for a few more days.
Take XS1648303813 for example, it is called on 24th Sep 2020, but it has prices ...
- 708
2
votes
1
answer
244
views
Any good papers on Fixed Income Option pricing?
Whilst I have managed to find plenty of material on pricing of Interest Rate Options (i.e. Caps, Floors, Swaptions, spread-options, etc.), I haven't really managed to find any solid papers on the ...
- 5,938
3
votes
1
answer
354
views
Misleading Yield (Callable Bonds with call price 100)
When looking at Callable Bonds, I've noticed that we often have a call price of 100 with a call date a few month before expiry. For example:
US09681MAS70: coupon <...
- 1,192
3
votes
1
answer
530
views
Cox-Ingersoll-Ross: Monte Carlo Simulation
I am trying to build a Monte Carlo simulation in Excel (yes, far from optimal) for valuation of a callable bond. I have some experience with MC simulation on path dependent derivatives with stocks as ...
- 61
0
votes
1
answer
229
views
0
votes
0
answers
23
views
What are some robust Contingent Capital Instrument available?
I recently was made aware of the existence of Contingent Capital Instruments like CoCo Bonds. I was wondering if there are other robust options available for Big Banks in this domain?
5
votes
1
answer
200
views
Why are negative option prices possible for callable US treasury bonds?
I am not familiar enough with the theories of option pricing to understand how negative option prices are possible. I found two research papers indicating that negative option prices are indeed ...
- 521
0
votes
1
answer
4k
views
Calculating YTM for a floating rate bond
I am trying to understand how YTM's are calculated for floating rate notes. I have had a go at calculating it and I am always a few bps off for every FRN I try to calculate. Does anyone have any ideas ...
- 81
3
votes
1
answer
978
views
Pricing a callable bond
I have read the Lehman Brother's paper on OAS which I mostly understand, they outline how to find the OAS for a callable bond of which the formula is effectively (ignoring refinancing costs):
Market ...
- 277
8
votes
1
answer
2k
views
Callable bonds with very short call period. Purpose?
Looking at a portfolio of bonds, I've come across a large number of callable bonds with relatively long maturities (20 to 30 years) but very short call windows. In other words, the first and only call ...
- 520