Imagine you have a bermuda option with right to exercise at year 1, 2 and 3. You have a system with exercise probabilities 20%, 15% and 25%, being the probability of not exercising is 40%. Would you exercise this option, and when? Which is the "general" rule for exercise probabilities p_i with i=1,..n, and probability of not exercising 1-Sum{p_i}. One possible solution is waiting till the first year. If probability of exercising here is greater than 50%, then exercise. If not, wait till to the next year arrives, see the new probability (now the probabilities will be readjusted, once the first year is away).

it would depend a lot on the pay-off and the market state. You havent given enough info to say anythinguseful.MJ

Quoteit would depend a lot on the pay-off and the market state. Please, elaborate. We speak, for example, of a payer swaption NC 1 year, strike 3, with probabilities to be cancelled in year 1 or 40%, and in year 2 of 30%.

exercise depends on value -- you will exercise an option if and only if it makes more value to do so. This will depend upon the precise specificion of the contract and the state of the market at the time of exercise. It's therefore not meaningful to talk about probability of exercise except within a model for market movements. MJ