Callable Bond's Value Analysis Using Binomial Interest Rate Tree Considering Early Redemption and Default Risks

Bonds are known as one of low-risk investments and worth to be considered a part an investor's portfolio, however there still underlying risks that could affect its price. This paper focuses on the effect early redemption risk default bond’s value. Using binomial interest rate tree method adjusted for version, this wants analyse how these Indonesian bonds’ values through simulations, while showing bonds can used construct trees. In simulation, more assumptions made because data limitations, which causes first period recovery fraction soar higher than other periods. The analysis shows that, compared present value standard bonds, tends cause bond's drop, contrary, rise. with is explained by high fraction.