can someone please give me a definition of contingent claim risk and an example? i know it applys to calable bonds/ mbs and even pention plans that are underfunded but i cannot find an actual definition anywhere in the books/web. also if you could give me an example of which party suffers this risk in a quick exmple, i would be greatful.
Well in a way, but with putables, the contingent claim is a benefit to the owner. The issuing entity is the one who has contingent claim risk because you can put the bond back to them at par when interest rates rise