I am looking for a set of parameters (d,u,r,So,K, N=?) for pricing an american call using binomial where the call hits the early exercise possibility.

Do you have any exemplary set?

  • $\begingroup$ Wild guess: if the remaining time value of the option is the less than interest rate on the in-money value, exercising early would make sense. $\endgroup$
    – user59
    Jan 21 '16 at 16:49
  • $\begingroup$ I am looking for an example where the early exercise of a call is possible just to see that the exercise is not an optimal strategy and the call should be hold until maturity (American=European call) as opposed to the put option where the exercise is profitable once it hits the exercise region. $\endgroup$
    – Michal
    Jan 21 '16 at 18:52

you need a positive dividend rate or a negative interest rate. Without these, it is a model-free result that early exercise is never optimal for a call option.


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