Business, Legal & Accounting Glossary
A European-style option is an option that may be exercised only at expiration, or maturity. The European-style option is less difficult to price than otherwise identical American-style option because the later, unlike the European-style option, can be exercised before maturity. Consequently, the corresponding American option may have no analytic formula even when one exists for the European-style option. This exercise flexibility, however, has made the European-style option less popular, despite the fact that American-style options are not always exercised prior to maturity. An example of a European-style option with an analytic solution that does not exist for the American-style option is the loopback option. The payoff to a loopback option depends on the maximum or minimum price reached by the underlying asset during the period until expiration. A European-style option can be traded on an American exchange, and vice versa. The first European-style option contracts had publicly traded stocks as the underlying asset.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for European-Style Option are sourced/syndicated and enhanced from:
This glossary post was last updated: 1st April, 2020 | 1 Views.