If the yield curve changes from flat to upward sloping why should that increase the value of the put and the bond?
Put options are naturally a hedge against interest rate risk. When the curve moves from flat to upward, it means interest has risen, the value of the bond will decrease, but this decrease will be partially offset by the increase in value of a put option.
In other words, interest UP => put UP => call DOWN => bond DOWN
Also, the reason why put option increase in value is because : when the price of the bond goes down (assumedly below your exercice price), you can put the bond at the exercice price which is higher, so your option becomes more valuable.
Put value gains when bond price falls. As the steepeness increases because of a hike in the long-end of the yield curve, bond prices fall, put options become in the money.
Did you come up with this so you can remember it in the exam?
I can never remember things like this
thank you all very much appreciated!!!