A Bermudan option is an option where the buyer has the right to exercise at a set (always discretely spaced) number of times. This is intermediate between a European option—which allows exercise at a single time, namely expiry—and an American option, which allows exercise at any time . For example a typical Bermudan swaption might confer the opportunity to enter into an interest rate swap. The option holder might decide to enter into the swap at the first exercise date or defer and have the opportunity to enter in six months time . Most exotic interest rate options are of Bermudan style.A type of option that can only be exercised on predetermined dates, usually every month.
The option falls somewhere between Europe and America – between a European option which can be exercised only at maturity and an American option which can be exercised at any point chosen by the holder. A Bermuda option usually can be exercised at any one of a number of points and this is stated in the option contract. Its premium value should fall between those of an American and European option, reflecting its midway position. Also Atlantic option.
Like the mixed culture of Bermuda, bermuda options are a combination of American and European style options. However, the flexibility of Bermuda options is limited to only several specific dates, which resembles European-style options, which can be exercised only at expiration.