What is 'Yield-Based Option'

A type of debt-instrument-based option that derives its value from the difference between the exercise price and the value of the yield of the underlying debt instrument. Yield-based options are settled in cash. A yield-based call buyer expects interest rates to go up, while a yield-based put buyer expects interest rates to go down.

Explaining 'Yield-Based Option'

If the interest rate of the underlying debt security rises above the strike price of a yield-based call option plus the premium paid, the call holder is 'in the money'. Should the opposite occur, and the interest rate falls below the strike price less the premium paid for a yield-based put option, the put holder is in the money.

Further Reading

Difference systems in financial futures markets
onlinelibrary.wiley.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Relative scarcity and convenience yield: evidence from non-ferrous metals
www.tandfonline.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

How relevant is volatility forecasting for financial risk management?
www.mitpressjournals.org [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Firm valuation and accounting for employee stock options
www.tandfonline.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Dividend-yield based trading rules: The Turkish evidence
papers.ssrn.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Measuring the manufacturing process yield based on fuzzy data
www.tandfonline.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Technological and financial approaches to risk management in agriculture: an integrated approach
onlinelibrary.wiley.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …

Improving the predictability of real economic activity and asset returns with forward variances inferred from option portfolios
www.sciencedirect.com [PDF]
… Table 2. Relative convenience yield based for the next 2 years quarterly (CY 1q1–CY 2q4 … Scholar. Black and Scholes, 1973 F. Black, M. ScholesThe pricing of options and corporate … contingent claims. D. Lund, B. Øksendal (Eds.), Stochastic Models and Option Values, North …