Pricing of optional bonds

Dan Galai

doi:10.1016/0378-4266(83)90042-0

Pricing of optional bonds

Dan Galai^*

^*Corresponding author for this work

BA Business Department

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

This paper presents a valuation formula for optional bonds. The value of an optional bond is expressed as a weighted average of an index-linked bond and a nominal bond, and the weights are a function of the relative value of the index-linked component to the nominal component, the time to maturity of the bond of the volatility of the inflation rate. By assuming the validity of the model and market efficiency, the valuation formula is used to impute the otherwise unobservable nominal yield to maturity for bonds in Israel.

Original language	English
Pages (from-to)	323-337
Number of pages	15
Journal	Journal of Banking and Finance
Volume	7
Issue number	3
DOIs	https://doi.org/10.1016/0378-4266(83)90042-0
State	Published - Sep 1983

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title = "Pricing of optional bonds",

abstract = "This paper presents a valuation formula for optional bonds. The value of an optional bond is expressed as a weighted average of an index-linked bond and a nominal bond, and the weights are a function of the relative value of the index-linked component to the nominal component, the time to maturity of the bond of the volatility of the inflation rate. By assuming the validity of the model and market efficiency, the valuation formula is used to impute the otherwise unobservable nominal yield to maturity for bonds in Israel.",

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AB - This paper presents a valuation formula for optional bonds. The value of an optional bond is expressed as a weighted average of an index-linked bond and a nominal bond, and the weights are a function of the relative value of the index-linked component to the nominal component, the time to maturity of the bond of the volatility of the inflation rate. By assuming the validity of the model and market efficiency, the valuation formula is used to impute the otherwise unobservable nominal yield to maturity for bonds in Israel.

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Pricing of optional bonds

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