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Convexity & Bonds with Options

January 4, 2016

The convexity of a callable bond turns negative when the call is near the money because the upside for the bond is much smaller than the downside (because the value is capped at the call price.)

The convexity of a potable bond is always positive because when the option is near the money, the upside of the bond is larger than the downside (because the floor value is the put price.)


From → Asset Valuation

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