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REFERENCES
Fabozzi, Frank J. (2009). Bond Markets, Analysis and Strategies. Hoboken, NJ: John Wiley & Sons.
Pliska, Stanley R. (1997). Introduction to Mathematical Finance. Malden, MA: Blackwell.
1 There are, however, exceptions. Some debt issues are accompanied by option-like instruments called warrants designed to improve the marketability of the debt. Other debt issues are convertible, meaning they have a built-in option to exchange the debt for equity.
2 Of course, they have not eliminated opportunity risk. If the price changes over the three months, one of the parties will be worse off (and the other better off) than if the contract had not been struck. These details are explored next.
3 That is, a profit calculated without taking account of transactions costs.