Price-Based Option

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DEFINITION of 'Price-Based Option'

A derivative financial instrument in which the underlying asset is a debt security. Typically, these options give their holders the right to purchase or sell an underlying debt security (usually a bond) or to receive cash payment based on the current value of the underlying debt security.

BREAKING DOWN 'Price-Based Option'

This unique type of option has been traded in the past, but it is rarely traded in modern financial markets. The yield-based option is a more commonly-traded relative of the priced-based option.

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    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
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    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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