hi guys,
on p.85 of schweser notes on fixed income portfolio management:
there is an example:
“A portfolio manager holds 1,000 bonds wiht a face value of $1 million. The current spread over a comparable US Treasury is 200 basis points. The portfolio manager purchases credit spread calls with a strike price of 250 basis points, notional principal of $1 million, and a risk factor of 10. At the option’s maturity, the bond price is $900, implying a spread of 350 basis points. what is the option value?”
may i ask how you calculate the 350 basis points? is there any way to calculate it?
thanks. appreciate your help.