pacmandefense

A European Call Option's min value is Max(0, St - X(1+RFR) ^T-t. No question about that.

Comparing an American Call to European Call, the former will be worth at least as much as the latter, ceteris paribus, due to the ability of exercising any time. Hence, AC's min value must not be less than EC's min value.

Max(0, St - X(1+RFR) ^T-t > Max (0,St-X)



Edited 1 time(s). Last edit at Monday, October 5, 2009 at 10:26PM by revenant.