23-37 The payoff of a credit spread call option increases as the yield spread on a specified benchmark bond increases above some exercise spread.

Question

Quizplus · Accepted Answer

This statement is correct. A credit spread call option is a type of option strategy where the investor simultaneously sells a call option on a higher yield bond and buys a call option on a lower yield bond of the same issuer. The investor profits from the difference in yield between the two bonds, which is known as the spread. The payoff of the credit spread call option increases as the spread widens or as the yield spread on a specified benchmark bond increases above some exercise spread.

23-37 the Payoff of a Credit Spread Call Option Increases