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Valuing Bonds with Embedded Options The prior tutorials introduced the fundamentals of fixed income valuation for bonds that make periodic fixed-coupon interest payments. The values of such bonds can be easily derived because their cash flows are known with relative certainty. However, it is more difficult to value bonds with embedded options because the execution of an option alters a bond’s future cash flows. Investors use complex valuation models to value options. These models forecast the probable outcome of cash flows given economic expectations. Future tutorials will discuss specific option valuation models. Questions: -No Questions- All
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