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Glossary

Bermuda Option

Category — Bond Option Types
A Bermuda option is a type of a call or put option that entitles a holder or an issuer, respectively, to early redemption of a bond on several predetermined dates.

A bond may have at least two Bermuda options. Thus, the Bermuda option is a hybrid of the European and American options: on the one hand, it is discrete and allows for early redemption of the security on a specified date only, but on the other hand, it is repeated more than once and therefore is an ongoing option. The dates of Bermuda options often match the dates of the coupon payments on the bond (for example, Consumers Energy, FRN 7oct2070, USD). A gradual increase in the price of execution of Bermuda call options is typical for discount bonds (for example, Bank of America Corporation, 0% 20jun2047, USD).

If the Bermuda option was not exercised on the last possible date or was exercised to a portion of the issue amount, after that date it no longer affects the bond value and the security is traded as a plain vanilla since early redemption is no longer possible.
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