Option Embedded Bonds: Price Analysis, Credit Risk, & Investment Strategies

Interest rate volatility has spawned a huge increase in the issuances of option-embedded bonds. Comprising a variety of structures including: callable bonds, structured notes and convertible securities, option-embedded bonds confer benefits to both borrowers and investors. For borrowers, these products usually provide protection against interest rate risk. For investors, they typically provide higher yields than conventional bonds. Unfortunately, due to the complexity of their structures, option-embedded bonds are often difficult to value. This volume describes how to analyze and value these instruments as well as investment strategies to maximize returns.