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r > 0. I understand that money today is worth more than money tomorrow. So if volatility is 0, it's better to take the money today. But I don't understand how to square away the following:
- Time value for American Options is always nonnegative
- Value = Time Value + Intrinsic Value
How is it ever optimal to throw away positive time value?
asked Mar 27 at 4:30
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“How is it ever optimal to throw away positive time value?”
Answer: when the thing you are throwing away is less than what you are gaining through the early exercise . What is that ? Interest you receive on the strike price by receiving it earlier.
answered Mar 27 at 9:05
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