Extendible bond

Extendible bond (or extendable bond[1]) is a complex bond with the embedded option for a holder to extend its maturity date by a number of years.[2][3] Such a bond may be considered as a portfolio of a straight, shorter-term bond and a call option to buy a longer-term bond. This relatively rare type of bond works to the advantage of investors during periods of declining interest rates.[4] Pricing of the extendible bond will be similar to that of a puttable bond.

Sometimes, the bond may be structured so as to give an option to extend to the issuer.[5] In this case, pricing will be similar to that of a callable bond.

Pricing

See also Bond option: Embedded options, for further detail.

Price of extendible bond = Price of straight bond + Price of the option to extend

References

  1. ↑ extendable bond
  2. ↑ Financial Times Lexicon
  3. ↑ Investment Alternatives
  4. ↑ Extendable bond — Invest Definition
  5. ↑ Extendable Bond
  6. ↑ IMF Puttable and Extendible Bonds

External links