We can view the holder of a callable bond as owning a straight bond and holding a short a call option on the bond. The value of the embedded call option (Vcall) is the difference between the value of a straight (Vstraight) bond and the value of the comparable callable bond (Vcallable):
Vcall = Vstraight − Vcallable
Conversely, investors are willing to pay a premium for a putable bond, since its holder effectively owns an option-free bond plus a put option. The value of a putable bond can be expressed as:
Vputable = Vstraight + Vput