When a bond is issued, especially if it is a long dated one, the issuer may want to have some flexibility about when it is repaid. This could arise, inter alia, because:
Such an option that gives the issuer a right to redeem all or part of a bond early is called a ‘call’ option.
Another variant of this is when the issuer wants to redeem the bond in stages, instead of in one go, via a sinking fund. This may occur when the issue is relatively large compared to the size of the issuer.
In the case of collateralized mortgage bonds securitized with a pool of mortgages, the bond will be repaid according to when the underlying mortgages themselves are paid off. The bond is thus redeemed in a number of tranches of unknown size.
In a similar way, in order to make a bond more attractive to an investor, the issuer may grant the investor a variety of different options. These can vary from: