Callable and Puttable Bond Curve Questions
I’ve a question about the price v.s. yield curve of callable and puttable bonds. The callable bond will show a negative convexity at lower yield and its price will be lower than the straight bond, and the puttable bond will show a more positive convexity at higher yield and its price will be higher than the straight bond.
Also the straight bond price will go to zero as yield approaches infinity. I dont understand why the puttable bond will approach its put price instead of zero as the yield approaches infinity. I think all the cash flow, no matter its the strike price or original cash flow will be discounted towards zero. Could anyone explain this to me?
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