can someone please tell me what is the interest rate option underlying? Is it the futures on the bond( i.e. if rates go down, bond prices go up and call option goes in the money) or is it on rate itself (i.e. if rates go down, call option goes out of money). Thanks very much.
Im pretty fried at this point, but an Interest Rate option is on the rate. The options with the bond prices underlying are typically Treasury Futures for the purposes of the exam. Someone make sure I am right on this.
so i thought but unfortunately, schweser in chapter 10 says otherwise. It indicates that most of the interest rate options are on the futures on the bond. i’m sinking.