Study Of The Influence Of Embedded Options On Corporate Bond's Value

As provisions which are embedded in corporate bonds and allow issuers or investors to change their future cash flow, the embedded options are valuable and become a part of corporate bond's value. Taking convertible options and callable options as examples respectively, the paper analyses the influence of embedded options, caused by the change in stock price and interest rate, on corporate bond's value. Then, proposes methods of valuating approximately the influence. Accounting for the influence, explores a stochastic immunization method and financial engineering approaches based on hedging, which are two kinds of interest rate risk management strategies. On the basis of above discussion, analyses development situation of corporate bonds with embedded options at present in our country, and then introduces corresponding political suggestions.