Martin Fridson



For an underwriter, it’s an admission of failure to tell an issuer: “I got you a fair rate on your bonds.” If the investment bankers merely obtain the market clearing price, how can they claim to have added value? Their challenge is to enable the client to borrow at less than its appropriate risk-adjusted rate, without breaking any securities laws.

In this context, embedded options are a godsend. One prominent example is the provision for early retirement. Embedded options helpfully muddy the

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