Bermudan option
- noun
- /bərˈmuːdən ˈɒpʃən/
- Specialized
:
opción bermudense
- The Bermudan option allows the holder to exercise rights on specific dates within the contract period.
Examples
-
Unlike an American option, a Bermudan option can only be exercised at certain prescribed times.
-
Many structured financial products use the Bermudan option as a flexible compromise between American and European options.
-
Investors often choose a Bermudan option for its flexibility.
-
A Bermudan option allows exercise at set times.
-
Many structured financial products use the Bermudan option as a flexible compromise between American and European options.
-
The Bermudan option allows the holder to exercise rights on specific dates within the contract period.
-
Unlike an American option, a Bermudan option can only be exercised at certain prescribed times.
Synonyms
256
7.4
A right to buy or sell something at a set price before a set time
Surface Forms
Morphology
The label 'Bermudan' only signals an association with Bermuda and gives no clue about exercise timing, while 'option' signals a financial right; the specific rule that it can be exercised on discrete dates is a technical convention rather than a compositional meaning. This is a domain-specific term whose core meaning cannot be derived by a B1 learner from the constituent words alone, so it is opaque without prior financial knowledge.
Etymology
Bermudan option may come from the idea that it sits between 'American' and 'European' options, like the island of Bermuda between two lands. Unlike an 'American' option you can use any time and unlike a 'European' option you can only use at the end, a Bermudan option can be used on certain dates, so it means 'can be exercised at specific times'.