lecture17

lecture17 -...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Open Yale Courses ECON 251: Financial Theory Lecture 17 - Callable Bonds and the Mortgage Prepayment Option << previous session | next session >> Overview: This lecture is about optimal exercise strategies for callable bonds, which are bonds bundled with an option that allows the borrower to pay back the loan early, if she chooses. Using backward induction, we calculate the borrower's optimal strategy and the value of the option. As with the simple examples in the previous lecture, the option value turns out to be very large. The most important callable bond is the fixed rate
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2012 for the course ECON 251 taught by Professor Geanakoplos,john during the Fall '09 term at Yale.

Ask a homework question - tutors are online