Are Fixed income derivitives Bond options?

Answer 1

Generally when people refer to derivatives in the fixed income market, they are refering to credit default swaps, but there are a whole host of other derivatives that fall in the category like options on bonds, interest rate swaps and interest rate options.

Answer 2

Yes. Bond options are a type of fixed income derivative. More specifically, almost all bond options are really bond futures options. This means they are options to buy/sell a bond futures contract by a certain future time. Most futures contracts and associated options trade on an exchange. The Chicago Board of Trade (CBOT) is the major U.S. Treasury bond derivatives market.

There are several other fixed income derivatives involving futures contracts on various bond and money market interest rates. Additionally, swaps in the fixed income market (most common being interest rate swaps) are a sizable area of derivative trading in short-term (money market) and long-term (bond) interest rates. Advanced fixed income derivatives such as credit default swaps allow markets to speculate on credit quality as opposed to just speculating on overall interest rate levels among borrowers/issuers. Furthermore, international money markets for short-term interbank borrowing/lending in various major currencies trade interest rate swaps, futures, and futures options.

You can read more at the CBOT website at www.cbot.com
You can also read more at the Chicago Mercantile Exchange (a major IMM derivatives market) at www.cme.com

Answer 3

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