Exercise Rights Fixed at a Grant-Date Decision

Summary

The document describes an option-like contract with two dates. At an initial grant date, the holder chooses a later exercise date; once that choice is made, the option behaves like a European option, with exercise permitted only on the selected date. The selected date may depend on the stock-price history observed through the grant date. The author asks whether this exercise structure has a standard name, suggesting Bermudan as a possible analogy.

No answer or valuation method is included, and the post does not specify the set of eligible exercise dates, payoff details, or whether the initial choice is binding under all contract terms. Those details matter when classifying the contract and modeling its value. The setup is nevertheless useful for distinguishing an ordinary American option, where exercise timing remains flexible, from a contract whose later exercise date is selected at an earlier information date. It frames a contingent exercise-timing problem rather than presenting a pricing result.

Key ideas

• The holder selects a future exercise date at a fixed earlier decision date.
• The selected date may depend on the stock-price history available at the decision date.
• After the choice, exercise is limited to the selected date, resembling European exercise.
• The post asks whether this structure has a standard name but provides no classification or valuation answer.
• The available exercise dates and contract terms would affect how the payoff should be modeled.

Tags

# Option style with grant date


# Option style with grant date












The following option exercise style is somewhere between American and European:

There is a fixed grant date $N_1$ at which you determine at which date $N_2>N_1$ the option will be exercised.

So once the grant date $N_1$ arrives, the option becomes European, i.e., you have to commit yourself to when the option will be exercised. But the choice of $N_2$ may depend on the history of stock prices up to time $N_1$.

Perhaps this is Bermudan or Verde. Is there a standard or succinct way to describe it?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.