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The Early Exercise Premia of American Put Options on Stocks

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  • Sung, Hyun Mo

Abstract

Using the put-call parity, this paper finds that early exercise premia of short-lived American put options on stocks account for a significant portion of put prices. This finding holds even for out-of-the-money put options. The magnitude of the early exercise premia of American put options with no dividend is positively related to the degree of moneyness, time to maturity of the put option, and the volatility. The magnitude of the early exercise premia of American put options with dividend is positively related to the degree of moneyness and the risk-free interest rates. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Sung, Hyun Mo, 1995. "The Early Exercise Premia of American Put Options on Stocks," Review of Quantitative Finance and Accounting, Springer, vol. 5(4), pages 365-373, December.
    • Handle: RePEc:kap:rqfnac:v:5:y:1995:i:4:p:365-73
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    Cited by:

    1. C. He & J. Kennedy & T. Coleman & P. Forsyth & Y. Li & K. Vetzal, 2006. "Calibration and hedging under jump diffusion," Review of Derivatives Research, Springer, vol. 9(1), pages 1-35, January.
    2. 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.

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