Interest rate futures options are preferred to bond options because they have more favorable liquidity, credit risk, and market-to-market features.

Question

Quizplus · Accepted Answer

Interest rate futures options have standardized contract sizes and are traded on organized exchanges, providing greater liquidity compared to individual bond options. Additionally, interest rate futures options are cleared through a central counterparty, reducing credit risk. Finally, interest rate futures options are marked-to-market daily, providing greater transparency and reducing counterparty risk.

Interest Rate Futures Options Are Preferred to Bond Options Because