Asked by Kailyn Holmes on May 11, 2024
Verified
Relative to European puts, otherwise identical American put options
A) are less valuable.
B) are more valuable.
C) are equal in value.
D) will always be exercised earlier.
E) None of the options are correct.
American Put Options
Contracts that give the holder the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time period.
European Puts
Options contracts giving the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a predetermined price within a specified time frame.
- Distinguish between the valuation and exercise strategies of American and European options.
Verified Answer
JG
Jennifer GanbaatarMay 18, 2024
Final Answer :
B
Explanation :
American put options are more valuable than European puts because they can be exercised at any time up to the expiration date, providing more flexibility and potential for profit if the underlying asset's price falls below the strike price before expiration.
Learning Objectives
- Distinguish between the valuation and exercise strategies of American and European options.