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Bermuda (; officially, the Bermudas or Somers Islands) is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida. Its capital city is Hamilton but the largest municipality is the town of Saint George's.
http://wn.com/Bermuda -
The Canary Islands (, also known as the Canaries; , ; ) are a Spanish archipelago located just off the northwest coast of mainland Africa, 100 km west of the border between Morocco and the Western Sahara. The Canaries are a Spanish Autonomous Community and an Outermost Region of the European Union. The islands include (from largest to smallest): Tenerife, Fuerteventura, Gran Canaria, Lanzarote, La Palma, La Gomera, El Hierro, La Graciosa, Alegranza and Montaña Clara.
http://wn.com/Canary_Islands -
The University of Oxford (informally Oxford University, or simply Oxford) is a university located in Oxford, United Kingdom. It is the third oldest surviving university and the oldest university in the English-speaking world. Although the exact date of foundation remains unclear, there is evidence of teaching there as far back as the 11th century. The University grew rapidly from 1167 when Henry II banned English students from attending the University of Paris.
http://wn.com/University_of_Oxford
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- Whaley options model

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- Asian option
- basket option
- Bermuda
- binary option
- Black model
- Black-Scholes
- Bond (finance)
- bond option
- calibrate
- call option
- Canary Islands
- CBOE
- chooser option
- cliquet option
- convertible bond
- correlation
- Coupon (bond)
- Covered call
- cross option
- currency
- Derivative (finance)
- Derivatives market
- dirty price
- dividend
- exchange rate
- Exercise (options)
- exotic option
- Extreme value
- Finance
- Financial economics
- forward start option
- Futures contract
- futures exchange
- gold
- hedge (finance)
- in the money
- inflation
- interest rate cap
- interest rate swap
- mark to market
- Moneyness
- Naked put
- option (finance)
- Option contract
- Option screener
- Option time value
- Path dependence
- put option
- Put-call parity
- Quanto
- rainbow option
- Real option
- stock
- Stock option
- Strike price
- swaption
- U.S. dollar
- University of Oxford
- vanilla option
- Warrant (finance)
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American and European options
The key difference between American and European options relates to when the options can be exercised:For both, the pay-off - when it occurs - is via: :Max [ (S – K), 0 ], for a call option :Max [ (K – S), 0 ], for a put option: (Where K is the Strike price and S is the spot price of the underlying asset)
Option contracts traded on futures exchanges are mainly American-style, whereas those traded over-the-counter are mainly European.
Nearly all stock and equity options are American options, while indexes are generally represented by European options. A list of European and American options can be found on the Options Industry Council website.
Expiration date
American options expire the third Saturday of every month. They are closed for trading the Friday prior.European options expire the Friday prior to the third Saturday of every month. Therefore they are closed for trading the Thursday prior to the third Saturday of every month.
Difference in value
European options are typically valued using the Black-Scholes or Black model formula. This is a simple equation with a closed-form solution that has become standard in the financial community. There are no general formulae for American options, but a choice of models to approximate the price are available (for example Whaley, binomial options model, and others - there is no consensus on which is preferable).An investor holding an American-style option and seeking optimal value will only exercise it before maturity under certain circumstances. Any option has a non-negative time value and is usually worth more unexercised. Owners who wish to realise the full value of their option will mostly prefer to sell it on, rather than exercise it immediately, sacrificing the time value.
Where an American and a European option are otherwise identical (having the same strike price, etc.), the American option will be worth at least as much as the European (which it entails). If it is worth more, then the difference is a guide to the likelihood of early exercise. In practice, one can calculate the Black-Scholes price of a European option that is equivalent to the American option (except for the exercise dates of course). The difference between the two prices can then be used to calibrate the more complex American option model.
To account for the American's higher value there must be some situations in which it is optimal to exercise the American option before the expiration date. This can arise in several ways, such as:
Non-vanilla exercise rights
There are other, more unusual exercise styles in which the pay-off value remains the same as a standard option (as in the classic American and European options above) but where early exercise occurs differently:
"Exotic" options with standard exercise styles
These options can be exercised either European style or American style; they differ from the plain vanilla option only in the calculation of their pay-off value:
Non-vanilla path dependent "exotic" options
The following "exotic options" are still options, but have payoffs calculated quite differently from those above. Although these instruments are far more unusual they can also vary in exercise style (at least theoretically) between European and American:
An Asian option (or Average option) is an option where the payoff is not determined by the underlying price at maturity but by the average underlying price over some pre-set period of time. For example an Asian call option might pay MAX(DAILY_AVERAGE_OVER_LAST_THREE_MONTHS(S) - K, 0). Asian options were originated in Asian markets to prevent option traders from attempting to manipulate the price of the underlying security on the exercise date.
Related
See also
Options
References
External links
es:Tipos de opciones
This text is licensed under the Creative Commons CC-BY-SA License. This text was originally published on Wikipedia and was developed by the Wikipedia community.