An abandonment option is a financial contract that gives the holder the right, but not the obligation, to abandon a project or asset before it is completed. This option is often used in the energy industry, where companies may invest in the development of oil or gas reserves but want the flexibility to exit the project if it becomes unprofitable. The holder of the abandonment option can choose to exercise the option if market conditions change or if the costs of completing the project become too high. In return for this flexibility, the holder of the abandonment option may have to pay a fee to the issuer of the option. Abandonment options can be useful for managing risk in projects with uncertain outcomes.