Provision giving a party specific rights to take specific actions under specific conditions as a part of an agreement. Examples in the bond market are a ‘callable bond’ and a ‘putable bond,. The callable bond has an embedded option allowing the issuer to redeem the bond before its stated maturity date. In contrast, the putable bond allows its holder to redeem early. Known also as embeddo.

More On This Topic

Link to This Definition
Did you find this definition of EMBEDDED OPTION helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary