DEFINITION of 'Abandonment Option'

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".

BREAKING DOWN '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.

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