interest rate option

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Interest Rate Option

An option contract giving the holder to buy (for a call) or sell (for a put) a security with a certain interest rate at a given strike price on or before the expiration date. An interest-rate option is useful to hedge the interest rate risk inherent to portfolios consisting mainly of bonds.

interest rate option

An option contract on interest-bearing securities or on a futures contract on interest-bearing securities. These options are generally used as a means to manage the risk of a bond portfolio.
References in periodicals archive ?
The facility will provide public and private Indonesian borrowers with good funding opportunities given the currently low rates and the fixed interest-rate options, said Exim Bank chairman Fred Hochberg.
The joint venture, which began trading on 4 January 1999 under the name of "Euro Brokers Finacor Limited," combines the existing interest-rate options, Dollar deposit and Euro, Sterling, Dollar and Yen swaps operations of Euro Brokers in London with the Euro and Scandinavian swaps businesses of Finacor in London and the Euro swaps business of Finacor in Paris.
The new venture, to be called "Euro Brokers Finacor Limited," will combine the existing interest-rate options, Dollar deposit and Euro, Sterling, Dollar and Yen swaps operations of Euro Brokers International Limited in London with the Euro and Scandinavian swaps businesses of Finacor Limited in London and the Euro swaps business of Finacor Peter in Paris.
Milne, 1991, "A Simple Approach to Interest-Rate Option Pricing", Review of Financial Studies, 4:87-120