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Theoretically callable/puttable bond can have call option and put option on the very same date. Usually they have the same strike and that strike is 100, but let's say the C/P bond has put at 150 and call at 20.

Assuming the forward price is 100 and no discounting takes place, how is this resolved? Should I ask the user to specify the order? Should I value both simultaneously?

  1. Put first: C/P Bond = max(150, min(100, 20)) = 150

  2. Call first: C/P Bond = min(20, max(100, 150)) = 20

  3. Both:

  • Bond = 100
  • -Call = -max(100-20, 0) = -80
  • Put = max(150-100, 0) = 50
  • C/P Bond = 100-80+50 = 70
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  • $\begingroup$ They're pretty common on India, actually. $\endgroup$ Commented Dec 19, 2024 at 20:53
  • $\begingroup$ Do you have an example? an ISIN? $\endgroup$ Commented Dec 23, 2024 at 15:55

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