BOND OPTIONS
Master Complex Financial Derivative Contracts
Through Interactive AI Learning
A bond option is a financial derivative that grants the holder the right, but not the obligation, to buy or sell a bond at a predetermined price on or before a specified expiration date. These options are used by investors to hedge against interest rate fluctuations or speculate on bond price movements. There are two types of bond options: call options, which allow the purchase of bonds, and put options, which allow their sale. The value of a bond option is influenced by factors such as the bond's underlying price, interest rate changes, time to maturity, and volatility. Bond options are widely used in fixed-income markets to manage interest rate risks and enhance investment strategies.