Valuation models

Callable and putable bonds

Hull-White trinomial tree with QuantLib, option-adjusted spread from a price, the embedded option's value, yield to worst, effective duration and convexity.

Inputs

Results

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Methodology

Conventions

  • Hull-White trinomial tree on QuantLib, fitted to the curve plus the OAS.
  • Calls and puts are exercised on the clean price, on the dates given.

References

  • Hull, Options, Futures, and Other Derivatives, ch. 32
  • Fabozzi, Bond Markets

Formulas

Callable
V = min(call price + AI, continuation)
Option
call = straight āˆ’ callable
Effective duration
D = (Pāˆ’ āˆ’ P+) / (2 P Ī”y)