anyone else getting roasted in options questions? or am i alone?
What questions are you having problems with?
post them here and we will cook them all together!
just having a hard time thinking thru it logically. have read that chapter several times, cant seem to grasp it. any tips? im gonna slug thru it one more time right now…ill post some questions in a bit. thanks
I’ve been in the brokerage business for over a year now and options have always intrigued me, but it has come with time and persistence! Like strangedays said, post some questions and we’ll walk through it…
Can we please discuss the following??? A When Interest Rates RISE, what is the effect of - callable bond when compared to option free bond? - puttable bond when compared to option free bond? B When Interest Rate FALL, what is the effect of - callable bond when compared to option free bond? - puttable bond when compared to option free bond? C When Interest Rates RISE, what is the effect of - call option - put option D When Interest Rate FALL, what is the effect of - call option - put option
draw a yield-price diagram, insert a putable and callable tail A interest rates rise - callable bond, to the right of the yield where it hits the call price there will be no effect - putable bond will drop slower as it approaches the put price and never go below the put price B interest rates fall - callable bond will increase in prices more slowly than option-free bond because of a call feature - putable bond will have no effect to the left of the yield where price=put price ^^ these two are the easiest to figure out by looking at the price-yield diagram are mentioned the following are derived from the minimum-price formulas for european call and put options: C interest rates rise -call option min. price increases -put option min. price decreases D interest rates fall -call option min. price decreases -put option min price increases
thank you so much supersharpshooter. What pages of CFAI should i look at for the price yield diagram? I really need to work at this:(
check out pages 487 and 488 in the EQ/FI book, they will show you what the price-yield curve looks like for a putable and callable bond
http://i28.tinypic.com/123tx7d.gif this is the diagram i would draw every time i come across a conceptual question like this it will tell you everything about change in price, change in yield, convexity, duration, value of options and anything else you might need to know about straight, putable and callable bonds. it’s all summarized in the curve
The cover of the Schweser books 