Glossary
European Option
Category —
Bond Option Types
An European 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 a predetermined date.
A bond may not have more than one European option, but may combine a European option with the interval ones - an American option (for example, JP Morgan, 0.653% 16sep2024, USD), a Make-Whole Call option or a softcall option. Therefore, the European option is not applicable to perpetual bonds, unlike the American and Bermuda options, as it is of a one-off discrete nature, whereas perpetual bonds must be subject to an early redemption provision on a permanent basis. In other respects, the European option is identical to the Bermuda option.
If the European option is the only option for the bond and was not exercised or was exercised to a portion of the issue amount, after its expiration date it no longer affects the bond value and the security is traded as a plain vanilla since early redemption is no longer possible.
A bond may not have more than one European option, but may combine a European option with the interval ones - an American option (for example, JP Morgan, 0.653% 16sep2024, USD), a Make-Whole Call option or a softcall option. Therefore, the European option is not applicable to perpetual bonds, unlike the American and Bermuda options, as it is of a one-off discrete nature, whereas perpetual bonds must be subject to an early redemption provision on a permanent basis. In other respects, the European option is identical to the Bermuda option.
If the European option is the only option for the bond and was not exercised or was exercised to a portion of the issue amount, after its expiration 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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