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The Value of Early Exercise in Option Prices: An Empirical Investigation

Published online by Cambridge University Press:  06 April 2009

Terry L. Zivney
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Abstract

Previous studies in the valuation of American options apparently undervalue the right of early exercise. This study uses actual prices from the CBOE's S&P 100 option instead of model-generated values. Deviations from the theoretical put-call parity relationship are caused by the possibility of early exercise. These deviations are used to infer the value of early exercise. The actual value of early exercise is both statistically and economically significant. As expected from theoretical considerations, the value of early exercise for put options is greater than for call options.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 26 , Issue 1 , March 1991 , pp. 129 - 138
Copyright
Copyright © School of Business Administration, University of Washington 1991

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