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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Then, one can compute European style option prices with expiry T and payoff H, using the formula [P.sub.t] = [E.sup.*] {[e.sup.-r(T-t)]H([X.sub.T]) | [F.sub.t]}.
Assume the payoff function H(XT) is continuous and piecewise smooth, and the discounted European style option price is [C.sup.2] as a function of the parameters.
A European style option may be exercised only during a specified period before the option expires.
For simplicity, let's assume that an investor wants to value a European style option; one which can only be exercised at expiration.
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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