Dear all,could you give me, please, some insights on Bermudan Bond Option Valuation.If I have a callable bond that is callable at a discrete number of dates (let's say 6 - e.g. we have a callable bond schedule)how should I account for the option value at the different call dates no matterwhether it is European or American exercise style and subsequently receive the option price at the present moment.Thank you in advance.

>could you give me, please, some insights on Bermudan Bond Option Valuation.I was just visiting Bermuda, most calculations over there includes ZERO tax (Bermuda is a beautiful looking tax paradise). So you should assume 0 tax for the coupons I would assume. I must admit I did not have much time to investigate the Bermudan bond option market. Spent most of my time on beaches with crystal blue water.However I observed a few gamma shapes, I also got the impression that curve fitting is very popular (cubic splines? or max smoothness ?), this even out of the swimming season, too cold water for most Bermudan this time of the year, but still Nice!! To find out more about your Bermudan options I suggest you take the trip out there, don't vaste your time on boring books when the best way is to learn from practice. Only 2 hours from NY city. Paul when will you arrange a Bermudan Bond Option Valuation seminar in Bermuda Don't forget tie and Bermuda shorts, also Sun Glasses is a must, especially if you want to study curve shaping and convvexity huhh I am back in ice cold new york

The only way I know how to do it is to use a interest rate model (like Hull White), calibrate it so that it matches today's discount factors exactly, and so that it also matches each of the European options "making up" the Bermudan. Then one uses backward induction in a tree or finite difference scheme to work out the value.

In case where it's not a Bermudan Bond option on a non investment grade bond, we should use a 2-f model.-interest rate is driven by 1-f model like HW, CRS, BK etc.-either spread curve or indensity rate is driven by 1-f model like BK, CRS, HW, etc. (take into consideration if credit spreads too low a log-normal process or bessel process should be applied).Calibration is done in two stages:-1 calibration on caps, swaptions or treasury options(less often);-2 calibration on similar risky bond options, credit spread options.