Risk glossary

 

Embedded option

An option, often an interest rate option, embedded in a debt instrument that affects its redemption. Embedded options are usually, but not always, interest rate options; some are linked to the price of an equity index (for example, Nikkei 225 puts embedded in Nikkei-linked bonds) or a commodity (usually gold, but sometimes oil). Embedded options may be embedded in physical commodity contracts or commodity derivatives such as extendible swaps.

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