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Bermuda Option

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A bermuda option is derivative instrument where the holder of the option has the right, but not the obligation, to exercise his option only on certain predefined dates occurring in regular intervals throughout the duration of the contract. The bermuda option is a hybrid of an american option, where the holder is entitled to exercise at any point for the contract duration, and a european option, where the holder may only exercise his right at the point of expiry. The bermuda option gets its name from the fact that Bermuda lies geographically between the United States and Europe. Bermuda option contracts can either be a put or call type. Bermuda option contracts are less common than their American and European cousins. Further, bermuda option contracts are generally traded over the counter. A bermuda option can apply to a variety of underlying assets, however, this option type tends to be most frequently used with Forex and interest rate contracts (e.g. bermuda swaption).



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