Guys, I am a little bit stacked with Binomial Tree application in the Fixed Income.
Particularly, there are several moments that contradict to each other in my opinion:
In the Reading 36 “Arbitrage-Free Valuation Framework”, Example 3, at Time 0 there are no coupon payments used in formula
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But in the next Reading 37 “Valuation and Analysis: Bonds with Embedded Options” in all Examples with Binomial Trees coupons are used to calculate bond price at Time 0. Also, coupons are added not as in previous Reading - they are added inside brackets.
Obviously, embedded options add certain complexity in the process but I believe that overall mechanics of computation should be the same. Can you, please, explain what is going on?