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Fully Callable Bonds. Can be called at any time after the call date if applicable. Common among corporate bonds. Partially Callable Bonds. Only a portion of the bond can be called, not the full amount
Callable bond: allows the issuer to buy back the bond at a predetermined price at a certain time in future. The holder of such a bond has, in effect, sold a call option to the issuer. Callable bonds cannot be called for the first few years of their life. This period is known as the lock out period.
Yield to call (YTC): when a bond is callable (can be repurchased by the issuer at pre-determined date before the maturity), the market looks also to the Yield to call, which is the same calculation of the YTM, but assumes that the bond will be called, so the cashflow is shortened.
If rates go down, many home owners will refinance at a lower rate. As a consequence, the agencies lose assets. By issuing numerous callable bonds, they have a natural hedge, as they can then call their own issues and refinance at a lower rate. The price behaviour of a callable bond is the opposite of that of puttable bond.
Imagine this -- you find a 10-year, high-yielding certificate of deposit (CD) that's federally insured and pays you enough monthly interest to cover your basic expenses. You might feel like your ...
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the expected intrinsic value of the option, defined as the expected value of the difference between the strike price and the market value, i.e., max[S−X, 0]. [3] the risk premium to compensate for the unpredictability of the value; the time value of money reflecting the delay to the payout time
Prior to 2010, [1] standard equity option naming convention in North America, as used by the Options Clearing Corporation, was as follows: For example, an Apple Inc AAPL.O call option that would have expired in December 2007 at a $122.50 strike price would be displayed as APVLZ in old convention (AAPL071222C00122500 in new convention).