Abandonment Option
What Does Abandonment Option Mean?
A clause granting parties the option of withdrawing from the contract before the fulfillment or completion of all contractual duties. This clause adds value by giving the parties the ability to end the obligation if it is unprofitable.
A type of "real option".
Investopedia explains Abandonment Option
Abandonment options are commonly used in bilateral agreements without a set time frame for expiry. Usually, one party may decide to exit from the relationship without penalty.
An abandonment option often appears in contracts between financial planners and their clients.
Related Links
- Options Basics Tutorial - An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them.
- Pin Down Stock Price With Real Options - How can you assign a value to what a company may do with its business in the future? We explain how it works.
