What Is Bermudan Option?

A Bermudan option is an exotic type of options contract that allows the holder to exercise the option at certain predetermined dates. The name “Bermudan” comes from the fact that this type of option was first introduced in Bermuda.

The key feature of a Bermudan option is that it gives the holder the flexibility to choose when to exercise the option. This is in contrast to European-style options, which can only be exercised on the expiration date.

The holder of a Bermudan option will pay a premium upfront for this flexibility. Whether or not this is a good deal depends on the expected future path of the underlying asset’s price. If the price is expected to rise, then it may be worth paying the premium for the ability to exercise early. On the other hand, if the price is expected to fall, then it may be better to wait and see if the option expires in-the-money.

Bermudan options are often used in finance as a way to hedge against certain types of risk. For example, a company that is exposed to currency risk may purchase a Bermudan option on a foreign currency in order to protect itself from potential losses.

Related Posts

1973 Oil Crisis

The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on…

View Definition

1979 Energy Crisis

The 1979 Energy Crisis refers to the sudden increase in oil prices that occurred after the Iranian Revolution. This event led to an oil embargo by sever…

View Definition

2010 Flash Crash

The 2010 Flash Crash was a sudden stock market crash that occurred on May 6, 2010. The Dow Jones Industrial Average (DJIA) fell by over 1,000 points, or…

View Definition


A 401(a) is a retirement savings plan offered by many public and private employers. Employees can choose to have a certain percentage of their paycheck …

View Definition


A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a portion of their paycheck before taxes are taken out. …

View Definition

Accident Insurance

Accident insurance is a type of insurance that covers medical expenses and other costs incurred as a result of an accident. It can be purchased as a sta…

View Definition