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 callable putable bonds vs call/put options on bonds 
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Joined: 01 Mar 2013
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Consider american styyle options
Should the value of put option in a putable bond or buying a put option on the same bond(without the put option) be different?
I think they should be same, and the values are calculated entirely differently (as dictated by fixed income portion and derivatives portion)
assuming the strike price is 100
Fixed income :-
you calculate the cost of option as:- present value of non putable bond - present value of putable bond
derivatives :-
you calculate the value of the put option as the present value of the intrinsic values of the put option
What is it that i am missing?


07 Jul 2015
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Joined: 01 Mar 2013
Posts: 14
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put options on a bond are path dependent. this is just like mortgage refinancing being path dependent.
for a bond the puts are european. ie. for a 30y bond it might be puttable at 10 and 20yrs.
for a bond derivate e.g. http://www.cmegroup.com/trading/interes ... ar-us-tr...
completely different use. american, used to specualate on curve shape. no credit spread. so i think ‘segmented markets’ is the keyword.


07 Jul 2015
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