Bonds can be sold with a variety of embedded options, for example: Call options Put options Prepayment options Conversion options In this article, we will concentrate on callable bonds and putable bonds, although we’ll mention prepayable and convertible bonds as well. The common method of valuing a callable or putable bond is to use a […]

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Some floating-rate bonds are easy to value: if the coupon resets to the market rate, then the value of the bond will reset to par.  (Of course, this assumes that by “the market rate” we mean the rate appropriate for a given bond, which may have to include risk premia above the Treasury rate.  If […]

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CFA® Level II Fixed Income Membership, CFA® Level II Membership

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All of these TLAs (Three-Letter Abbreviations) refer to measurements of the amount of prepayment on a mortgage-backed security (MBS, yet another TLA): CPR abbreviates Conditional Prepayment Rate, an annual measure of the prepayments on an MBS SMM abbreviates Single-Month Mortality, a monthly (duh!) measure of the prepayments on an MBS PSA abbreviates Public Securities Association, […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Fixed Income Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.