Modeling impact of volatility on value of the coupons

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Reference no: EM131781306

Question: In Robert Letterman, Jose Steinman, and Laurence Weiss, "Volatility and the Yield Curve," Journal of Fixed Income , Premier Issue, 1991, p. 49, the following statement was made: "Many fixed income securities (e.g., callable bonds) contain embedded options whose prices are sensitive to the level of volatility. Modeling the additional impact of volatility on the value of the coupons allows for a better understanding of the price behavior of these securities." Explain why.

Reference no: EM131781306

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Modeling impact of volatility on value of the coupons : In Robert Letterman, Jose Steinman, and Laurence Weiss, "Volatility and the Yield Curve," Journal of Fixed Income , Premier Issue, 1991, p. 49.

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