Timeline for Under what conditions will both European and American put options worth the same?
Current License: CC BY-SA 4.0
10 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Jun 14, 2020 at 15:41 | comment | added | nbbo2 | ... i.e. the american should have a price = Intrinsic Value, while the European price should be lower than this. | |
| Jun 14, 2020 at 8:03 | comment | added | nbbo2 | To test your code you need an example where American and European prices are different. For an interesting test case try a put option that is deeply in the money (S very low compared to K) and a very high interest rate (double digit). This is a case where the American should be exercised early. | |
| Jun 13, 2020 at 21:12 | answer | added | river_rat | timeline score: 1 | |
| Jun 13, 2020 at 11:19 | comment | added | Kevin | Early exercise is about receving your cash early and not waiting until the option expires. If there's no interest rate (no discounting, no time value of money), then there's no point of early exercise. More mathematically, look at the early exercise premium derived in Carr, Jarrow, Myneni (1992). It clearly equals zero if $r=0$. | |
| Jun 13, 2020 at 10:38 | comment | added | Idonknow | Perhaps you could explain your second statement? | |
| Jun 13, 2020 at 6:59 | history | edited | Idonknow | CC BY-SA 4.0 |
deleted 60 characters in body; deleted 5 characters in body
|
| Jun 13, 2020 at 5:33 | history | edited | Idonknow | CC BY-SA 4.0 |
added 135 characters in body; added 306 characters in body
|
| Jun 13, 2020 at 5:08 | comment | added | Kevin | Well, trivial examples would be zero strike ($K=0$) and at maturity ($t=T$). Also, the early exercise premium equals zero if $r=0$. | |
| Jun 13, 2020 at 2:52 | history | edited | Idonknow | CC BY-SA 4.0 |
deleted 1 character in body; deleted 1 character in body
|
| Jun 13, 2020 at 1:46 | history | asked | Idonknow | CC BY-SA 4.0 |