An option (similar to a contingent payout option) in which the underlying asset (equity, commodity or foreign exchange rate) is contingent upon a specific interest rate (the reference). The option exercise may be contingent on a floating interest rate being above or below a specified level or within a certain range on expiration date.
For instance, a put option on the stock of company XYZ gives the holder the right to exercise the put in case LIBOR rate is below a pre-determined level at expiration.
