Respuesta :
An option-free bond option priced at $90.25 has a tenure of 10.34 years and a convexity of 75.80 years. The closest percentage change in price is 17.65% if rates rise by 200 bps.
What is a bond option?
An option to buy or sell a bond at a specific price on or before the option expiration date is referred to as a bond option in finance. When bonds, the underlying assets in this example, approach their maturity date, all of the values associated with them become known, reducing their volatility. This phenomenon is known as pull-to-par. But because this process is not reflected in the Black-Scholes model, which assumes constant volatility, it cannot be used in this situation.
Bond-like characteristics are also referred to as "bond choices" in some cases ("embedded options"). These are not a distinct tradable product, but rather a component of the bond itself. A bond may have multiple alternatives because they are not mutually exclusive.
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