Callable Bonds and the Mortgage Prepayment Option - Financial Theory - John Geanakoplos - Lecture 17 of 26 - Video-lecture

Video-lecture, Financial Theory

Description: This lecture is about optimal exercise strategies for callable bonds, which are bonds bundled with an option that allows the borrower to pay back the loan early, if she chooses. Using backward induction, we calculate the borrower's optimal strategy and the value of the option.