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An Empirical Examination of the Pricing of American Put Options


  • Blomeyer, Edward C.
  • Johnson, Herb


This study is an ex post performance test comparing the accuracy of an American model to a European model for valuing listed options. Specifically, the Geske and Johnson American put valuation model is compared with the Black and Scholes European put model. On average, both models undervalue, relative to market prices, put options. However, the Geske and Johnson model values are significantly closer to market prices than are the Black and Scholes values.

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  • Blomeyer, Edward C. & Johnson, Herb, 1988. "An Empirical Examination of the Pricing of American Put Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 13-22, March.
  • Handle: RePEc:cup:jfinqa:v:23:y:1988:i:01:p:13-22_01

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    References listed on IDEAS

    1. Schlarbaum, Gary G & Lewellen, Wilbur G & Lease, Ronald C, 1978. "Realized Returns on Common Stock Investments: The Experience of Individual Investors," The Journal of Business, University of Chicago Press, vol. 51(2), pages 299-325, April.
    2. Ron Bird & Mark Tippett, 1986. "Note---Naive Diversification and Portfolio Risk---A Note," Management Science, INFORMS, vol. 32(2), pages 244-251, February.
    3. John L. Evans & Stephen H. Archer, 1968. "Diversification And The Reduction Of Dispersion: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 23(5), pages 761-767, December.
    4. Conine, Thomas E, Jr & Tamarkin, Maurry, J, 1981. "On Diversification Given Asymmetry in Returns," Journal of Finance, American Finance Association, vol. 36(5), pages 1143-1155, December.
    5. Mayshar, Joram, 1979. "Transaction Costs in a Model of Capital Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 673-700, August.
    6. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May.
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    Cited by:

    1. Butler, J. S. & Schachter, Barry, 1996. "The statistical properties of parameters inferred from the black-scholes formula," International Review of Financial Analysis, Elsevier, vol. 5(3), pages 223-235.
    2. Michael Dueker & Thomas W. Miller Jr., 2003. "Directly measuring early exercise premiums using American and European S&P 500 Index options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(3), pages 287-313, March.
    3. David S. Bates, 1995. "Testing Option Pricing Models," NBER Working Papers 5129, National Bureau of Economic Research, Inc.
    4. Michael J. Dueker & Thomas W. Miller, 1996. "Market microstructure effects on the direct measurement of the early exercise premium in exchange-listed options," Working Papers 1996-013, Federal Reserve Bank of St. Louis.
    5. Frans Roon & Chris Veld, 1996. "An empirical investigation of the factors that determine the pricing of Dutch index warrants," European Financial Management, European Financial Management Association, vol. 2(1), pages 97-112.
    6. feng dai, 2004. "The Partial Distribution: Definition, Properties and Applications in Economy," Econometrics 0403008, EconWPA.
    7. Jongwoo Lee & Dean Paxson, 2003. "Confined exponential approximations for the valuation of American options," The European Journal of Finance, Taylor & Francis Journals, vol. 9(5), pages 449-474.
    8. Engstrom, Malin & Norden, Lars, 2000. "The early exercise premium in American put option prices," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 461-479, December.
    9. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    10. Hadjiyannakis, Steve & Culumovic, Louis & Welch, Robert L., 1998. "The relative mispricing of the constant variance American put model," International Review of Economics & Finance, Elsevier, vol. 7(2), pages 149-171.

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