Question
We have a default-free, 3-year 7.37% annual coupon bond callable at par 1 year and 2 years from now. Suppose interest volatility is 10% so
We have a default-free, 3-year 7.37% annual coupon bond callable at par 1 year and 2 years from now. Suppose interest volatility is 10% so that we can calibrate the following binomial interest rate tree from the government par curve.
The OAS is 190
What is the price of the call option?
Round your answer to 2 decimal places. For example, if your answer is 25.689, please write down 25.69.
| Year 0 | Year 1 | Year 2 |
| 7.4832% | ||
| 5.7678% | ||
| 4.40% | 5.5437% | |
| 4.2729% | ||
| 4.1069% |
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The Handbook Of Financial Instruments
Authors: Frank J. Fabozzi
1st Edition
0471220922, 978-0471220923
