Price-Based Option

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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RELATED FAQS
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  3. What does the underlying of a derivative refer to?

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  4. How do speculators profit from options?

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  5. What's the difference between a regular option and an exotic option?

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