Microsoft PowerPoint - PoF.ppt

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Embedded options: options included in bond contracts

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NOTE:

The embedded options have a price!

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Freely ...: option can be exercised

at any time (notification period)

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Deferred ... provision: option cannot be

exercised during a certain period

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Callable bond:

allows the issuing firm to retire the bonds before T by

paying a pre-specified price (lower price)

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Putable bond:

allows the bondholder to sell the bond back to the issuer

(higher price); e.g. poison put: allows

the bondholder to sell the bond back

to the issuer in the case that someone obtains more than 50% of the company

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Convertible

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Exchangeability

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Embedded currency option

Multi-period deterministic cash flows: FI securities - Introduction