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Total Posts: 1
Joined: May 2020
Posted: 2020-05-01 02:43
Hello everyone,

I was looking to put some money into a certificate of deposit and noticed today my bank offers a bump-rate CD product. At any time during the life of the CD, you have the option to bump the rate up to the current market rate. This option can only be exercised once during the life of the security.

How to I go about computing a value for this added option? It's basically an embedded put option right? Binomial tree? Monte carlo? I'm not sure where to start here.

Thanks in advance for your help! I'm relatively new to financial engineering concepts but am eager to learn from you experts!
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