Callable Bond Pricing

Free SOA Exam FM (Financial Mathematics) lesson in Bonds. 11 min read, ~1,705 words.

Worst-case pricing: over all call dates. Price each call date as one TVM (N to that date, FV = call price), then take the minimum price, which guarantees the minimum yield. Premium bond ( ): worst case = earliest call. Discount bond ( ): worst case = maturity. Variable call...