From the course: Applied Fixed Income

Unlock this course with a free trial

Join today to access over 24,800 courses taught by industry experts.

YTP effective duration and convexity for putables

YTP effective duration and convexity for putables

From the course: Applied Fixed Income

Start my 1-month free trial Buy for my team

YTP effective duration and convexity for putables

“

- [Instructor] Now let's look more specifically at the yield measure for putable bonds. Like callables, where yield to maturity wasn't an accurate measure of the call option embedded in the bond, it's also not accurate for putable bonds with its embedded put option or options. Hence, we use a measure called yield-to-put, which is simply the return on a bond if the bond is only held to the first put date, as the option to-put implies that the investor will receive a predetermined par value at the put date, Whether it be 100 or some other amount, the yield calculation must be done to the correct par value. So on this slide of a screen capture of the same Occidental Petroleum zero-coupon putable bond that I talked about earlier, the price of that bond currently in the marketplace is 43.801, as observed on this Bloomberg screen here. However, in the next put date on the put schedule, it shows that the put price is only $43.708 on October 10th, 2020. That means if an investor were to…

Contents