问题如下:
If Smith’s interest rate volatility forecast turns out to be true, which bond in Exhibit 2 is likely to experience the greatest price increase?
选项:
A.Bond 2
B.Bond 3
C.Bond 4
解释:
B is correct.
An increase in interest rate volatility will cause the value of the put and call options embedded in Bond 3 and Bond 4 to increase. Bond 3 (putable) would experience an increase in price because the increased value of the put option increases the bond’s value. In contrast, Bond 4 (callable) will experience a price decrease because the increased value of the call option reduces the callable bond’s value. The price of Bond 2, an out-of-the money convertible, should be minimally affected by changes in interest rate volatility because the decision to exercise is less driven by interest rates and more by changes in the underlying stock price of Alpha Corporation.
对于Convertible bond,权利是embedded call option on stock,尤其是out-of-money的option,请问这里OTM option要怎么理解股票价格与conversion price的关系,谁大于谁,麻烦讲解一下,谢谢