Bermuda is a type of exotic option which has COMPONENTS OF BOTH AMERICAN AND EUROPEAN OPTION. The name Bermuda is derived from the place which lies between Europe and America. BERMUDA OPTION IS ALSO KNOWN AS MID-ATLANTIC OPTION.

Unlike American option, the exercise date is limited to a certain pre-determined date. Also, unlike European option which can only be exercised on the maturity date of the option contract, a Bermuda option can be exercised before maturity too. Due to these reasons, BERMUDA OPTIONS ARE GENERALLY PRICED HIGHER THAN EUROPEAN OPTION AND LOWER THAN AMERICAN OPTIONS.

It has components of both American and European options. They can either be exercised on the dates specified in the contract before expiration or on the date of expiration. They are customisable and traded bilaterally. The premium paid for buying Bermuda options, also lies between American and European option, that is, priced lower than American but higher than European options.

In some Bermuda options, there is a restriction in context of early expiration dates. In such case, the option cannot be exercised till the early expiration date (like European option). After the early expiration date, it is converted into an American option, that can be used any time till the expiration of contract.

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