
Explanation:
Higher interest rate volatility makes it more likely that rates will fall to a level where exercising the prepayment option is beneficial, so the value of the option increases.
No comments yet.
Question 50.1. What will increase the value of the prepayment option?
A
Decrease in interest rate volatility
B
Increase in interest rate volatility
C
Decrease in the static spread
D
Increase in the static spread