Embedded options in enhanced certificates of deposit
DOI:
https://doi.org/10.61190/fsr.v13i1.4780Keywords:
Embedded options, Enhanced CDs, Flexible CDs, Flex CDs, Certificates of depositAbstract
Deregulation and cornpet1t1on have led to the introduction of many new esoteric investment products in the financial service industry. One such product is the enhanced certificate of deposit, which contains embedded interest rate options. These securities are commonly known as flex certificates of deposit. We find that these products arc currently being priced in a peculiar manner. A discussion of the logical breakdown of options embedded in the flex certificate of deposit is given. We also consider why banks are willing to give away valuable interest rate options.
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