Callable Bond's Value Analysis Using Binomial Interest Rate Tree Considering Early Redemption and Default Risks
Felivia Kusnadi,
Devina Gabriella Tirtasaputra
Abstract:Bonds are known as one of low-risk investments and worth to be considered as a part of an investor's portfolio, however there are still underlying risks that could affect its price. This paper focuses on the effect of early redemption risk and default risk to a bond’s value. Using binomial interest rate tree method and its adjusted for default risk version, this paper wants to analyse how these risks affect Indonesian bonds’ values through simulations, while showing how these bonds can be used to construct the… Show more
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