A non-standard option in which the premium is paid monthly or quarterly over its life. Furthermore, this option gives the holder the right to stop making installment payments. In case that happened, the option will automatically be terminated on the date a payment is first missed. Insofar as the net present value of remaining installments is less than the option’s value, it is improper to still make any more payments. This option allows an investor, against a bit more premium, to limit losses arising from a good-turned-bad investment position. For non-American-style options (European options for instance), it is sometimes in the interest of an option holder to continue making payments if a pay-as-you-go option still has a positive net present value on a payment due date.

The pay-as-yo-go option (or PAUG option for short) is also known as installment option and continuation option.