Dear guys, I found interesting type of option which is similar to American but having finite number of exercise time. Yes, it is call Bermudan Option. I would like to ask about the example of using this theory in financial or economics. Waiting for anyone respon, Thank you for your attentionIrma P

In reality, all options allowing early exercise are Bermudan-type.

Then maybe we should stop calling them American and start calling them "once per business day Bermudan"

Dear Irma,The presentation of your discovery of Bermudan options to the members of Wilmott is a bit like somebody joining an internet community dedicated to tropical fruits, pointing out the existence of mango, and inquiring about its importance and potential uses. At least those of us working in fixed income markets are intimately familiar with Bermudan options, both in their pure form (swaptions) and when embedded in callable bonds. Also, they are a real product, not a theory. I am not sure what you mean when you talk about using it in "financial or economics". In general, we are slightly more forgiving in the Student forum.--bearish

QuoteOriginally posted by: irmapalupi4488Dear guys, I found interesting type of option which is similar to American but having finite number of exercise time. Yes, it is call Bermudan Option. I would like to ask about the example of using this theory in financial or economics. Waiting for anyone respon, Thank you for your attentionIrma PReally? I always had the impression it was an American option during summertime actually. Dressed in bermuda shorts, or something...

QuoteOriginally posted by: irmapalupi4488Dear guys, I found interesting type of option which is similar to American but having finite number of exercise time. Yes, it is call Bermudan Option. I would like to ask about the example of using this theory in financial or economics. Waiting for anyone respon, Thank you for your attentionIrma Ploooool

well, except that your analogy doesn't do the mango justice. a mango is a fruit that people actually eat, while a bermudan is a product that people don't trade. it might come back at some point though... but in the past few years it's been very boring. there was a bit of activity in 2014, but nothing to go crazy about...QuoteOriginally posted by: bearishDear Irma,The presentation of your discovery of Bermudan options to the members of Wilmott is a bit like somebody joining an internet community dedicated to tropical fruits, pointing out the existence of mango, and inquiring about its importance and potential uses. At least those of us working in fixed income markets are intimately familiar with Bermudan options, both in their pure form (swaptions) and when embedded in callable bonds. Also, they are a real product, not a theory. I am not sure what you mean when you talk about using it in "financial or economics". In general, we are slightly more forgiving in the Student forum.--bearish

Callable bonds, callable swaps, callable CMS range notes, ... these all create Bermudans, since a callable is normally booked as the underlying (non callable deal) plus a Bermudan option to enter the opposite deal.In fixed income, they are normally by far the largest class of exotics (and are often considered vanilla)

QuoteOriginally posted by: PatCallable bonds, callable swaps, callable CMS range notes, ... these all create Bermudans, since a callable is normally booked as the underlying (non callable deal) plus a Bermudan option to enter the opposite deal.In fixed income, they are normally by far the largest class of exotics (and are often considered vanilla)Actually, I have it on good authority (Flora Exotica -- scroll midway down the page) that at least in the Canadian market for seeds and plants, vanilla is considered to be exotic.