The profit on bond call options moves asymmetrically with interest rates.

Question

Quizplus · Accepted Answer

When interest rates decrease, the profit on bond call options increases at a faster rate than when interest rates increase. This is due to the inverse relationship between bond prices and interest rates. When interest rates decrease, bond prices increase at a faster rate, which benefits the owner of the call option. On the other hand, when interest rates increase, the bond prices decrease at a slower rate, which limits the profit potential for the call option owner. Therefore, the profit on bond call options is asymmetric with interest rates.

The Profit on Bond Call Options Moves Asymmetrically with Interest