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 Bermuda Options Locate this document in the navigation structure

Use

A Bermuda option has predefined dates on which the option can be exercised. The holder of the option has to give notice before he or she exercises the option. For each of the dates on which the option can be exercised, there is predefined date by which the holder must give notice – the end of the notification period. For options with a European exercise type, the holder can give notice only at the end of the notification period. For options with an American exercise type, the holder can give notice at any time during the notification period (including the first day and the last day in the notification period). Between the notification date and the date on which the option is exercised is the lead time, which is also predefined in the contract.

Integration

You create Bermuda options as generic transactions. For more information see Creating Bermuda Options .

Prerequisites

In the valuation rule, you need to have defined that the system is to use the Hull-White model. To define a valuation rule, in the Customizing for Risk Analysis choose   Common Settings for Market Risk and ALM   Valuation   Valuation Rule.   To assign the valuation rule to an evaluation type, in the Customizing for Risk Analysis choose   Common Settings for Market Risk and ALM   Valuation   Define Evaluation Type.  

Features

The price calculator uses a trinomial tree method to price Bermuda options. For more information see the section trinomial tree in Using the Hull-White Model to Price Options .