Kinda draft the following “summary” from doing questions… is this correct? Interest rate increases -> call option value decreases -> call option price increases Interest rate increases -> put option value decreases -> put option price decreases
"call option value decreases -> call option price increases " Huh?
should it be call option value decrease -> bond price increases? sorry i am really confused!
No. IR up call option value increases, put option value decreases. IR up it’s more attractive to hold money in the bank and buy the underlying asset later. Thus the reverse is true, it’s better to sell the underlying asset now and put the money in the bank.
Tell me you aren’t taking the exam on Saturday and asking on AF whether Inteerst rate increases => bond price increases?
call value = call price (in cfa world)
And following up with the bond. CB = B - C PB = B + P So if the call option value increases, callable bond price decreases. If the put option value decreases, putable bond price decreases. All else equals.
victorh Wrote: ------------------------------------------------------- > And following up with the bond. > > CB = B - C > PB = B + P > correct, the call is negative b/c the call actually benefits the issuer, not you
reg Wrote: ------------------------------------------------------- > Kinda draft the following “summary” from doing > questions… is this correct? > bottom line rates up, calls up rates up, puts down volatility up – god for both puts and calls – ALL options maturity longer – good for all options (meaning they go up in value) EXCEPT for european puts careful with these european puts.