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Contingent Hedge with an Agreement for Rebate at M
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A currency option designed for companies bidding on foreign contracts. If the company wins the contract, the option may be exercised like any other currency option. If the company loses the contract, the option is void, but the issuer rebates a portion of the premium. Consequently, the value of the payoff depends on the buyer's ability to obtain business requiring currency protection as well as on currency movements. The rebate serves the dual function of relating the net premium to the value of the hedge and facilitating the hedging position taken by the currency option dealer. See Contingent Currency Risk.
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Glossary *
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