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Aninterest rate option is a specificfinancial derivative contract whose value is based on interest rates.[1] Its value is tied to an underlyinginterest rate, such as the yield on 10 year treasury notes.
Similar to equity options, there are two types of contracts: calls and puts. A call gives the bearer the right, but not the obligation, to benefit off a rise in interest rates. A put gives the bearer the right, but not the obligation, to profit from a decrease in interest rates.
The exchange of theseinterest rate derivatives are monitored and facilitated by a central exchange such as those operated byCME Group.
