European style option

European Option

An option contract that may only be exercised on the expiration date. For example, if one buy a European call giving him/her the right to buy shares in X expiring on the final Friday in March, the call may only be exercised on the final Friday in March. The implication of a European option is the fact that its value is entirely dependent on the value of the underlying asset at the end of the contract. A holder may not wait for an advantageous price and exercise the option. This contrasts with an American option, which may be exercised at any time prior to expiry.

European style option.

A listed option that you can exercise only on the last trading day before the expiration date is called a European-style option whether it trades on a US exchange, a European exchange, or elsewhere in the world.

For example, many index options listed on various US exchanges are European-style options. In contrast, you can exercise an American-style option at any point between the day you purchase it and its expiration date.

All equity options are American style, no matter where the exchange on which they trade is located.

References in periodicals archive ?
Although this demonstration was for a European style option, it can easily be extended for an American style option.
The Black-Scholes formula is based on a European style option and is best used in valuing those types of options.
Fahlenbrach and Sandas study the determinants of the bid-ask spreads for index options using a sample that consists of all trades and quotes for the European style options and the futures on the FTSE 100 stock index from August 2001 to July 2002.

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