embedded option

embedded option
A provision in a financial contract or financial instrument, such as a loan or a security, that allows one party to change the timing or amount of one or more cash flows associated with that contract or instrument. An options feature of minor importance in bank products or debt instruments.
Sometimes called a hidden option.
They are " hidden" not because they are in any way secret but because they are not separate, detachable features that banks or customers can add or subtract to customize individual transactions. Instead, they are one of a number of features, terms, or contract rights that are embedded in the contract or financial instrument. Examples include prepayment options on loans, early withdrawal options on certificates of deposit, annual and lifetime rate caps on ARMs, and call options in bonds. Embedded options make both the projected return and the interest rate risk of a financial instrument difficult to evaluate because the probability that the option will be exercised must be evaluated, and may vary with movements in rates.
See embedded derivative instrument, option and option risk. American Banker Glossary
An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security. Bloomberg Financial Dictionary

Financial and business terms. 2012.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • Embedded Option — An option that is an inseparable part of another instrument. Compare this to a normal (or bare) option, which trades separately from the underlying security. A common embedded option is the call provision in most corporate bonds …   Investment dictionary

  • Embedded option — An option that is part of the structure of a bond that provides either the bondholder or issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security. The New York …   Financial and business terms

  • Option-adjusted spread — (OAS) is the flat spread which has to be added to the treasury yield curve in a pricing model (that accounts for embedded options) to discount a security payment to match its market price. OAS is hence model dependent. This concept can be applied …   Wikipedia

  • option — an agreement, often for a consideration, which permits the purchase or sale of something within a stipulated time, in accordance with the terms of the agreement. For example, a right by a tenant to take up a further lease of premises, usually… …   Financial and business terms

  • embedded derivative instrument — Defined by FASB in FAS 133. An implicit or explicit term in a contract such as a bond, insurance policy, or lease, that meets the definition of a derivative even though the entire contract may not. Under FAS 133, the certain embedded derivatives… …   Financial and business terms

  • Option N.V. — Option N.V. Industry Telecommunications, Wireless technology Founded Leuven, Belgium (1986) Headquarters Leuven, Belgium Key people Jan Callewaert, Founder in 1986 current CEO …   Wikipedia

  • option-adjusted spread — ( OAS) (1) A measurement of the return provided to an investor from a financial instrument that is either an option or that includes an option. The option adjusted spread calculations break up a security into separate cash flows. Each of those… …   Financial and business terms

  • Option (finance) — Stock option redirects here. For the employee incentive, see Employee stock option. Financial markets Public market Exchange Securities Bond market Fixed income …   Wikipedia

  • Option ROM — An Option ROM typically consists of firmware that is called by the system BIOS. For example, an adapter card that controls a boot device might contain firmware that is used to connect the device to the system once the Option ROM is loaded.… …   Wikipedia

  • Embedded-Database — Ein eingebettetes Datenbanksystem ist ein in einer Anwendung eingebettetes Datenbanksystem, das nach außen nicht sichtbar in Erscheinung tritt. Inhaltsverzeichnis 1 Eigenschaften 2 Einsatz in Klein und Kleinstgeräten 3 Liste der eingebetteten… …   Deutsch Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”