CHAPTER 12

Bond and Interest Rate Option Contracts

Introduction

Like the futures market, the option market in the United States can be traced back to the 1840s when options on corn meal, flour, and other agriculture commodities were traded in New York. These option contracts gave the holders the right, but not the obligation, to purchase or to sell a commodity at a specific price on or possibly before a specified date. Like forward contracts, options made it possible for farmers or agriculture dealers to lock in future prices. In contrast to commodity futures trading, though, the early market for commodity option trading was relatively thin. The market did grow marginally when options on stocks began trading on the over-the-counter (OTC) market ...

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