Derivatives, Am I right?
Is it correct?
Call
- no cash flows: Pa=Pe
- cash flows: Pa>Pe
Put
- no cash flows:Pa>Pe
- cash flows:Pa>Pe
Pa-price of american option Pe- price of european o
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Are you asking about lower bounds? Just remember that European option can not be exercised early whilst American can
for Calls Amercian and European C = max(0; S-X/(1+Rf)n) A>=E American is worth al leat as European calls
for Puts European can not be excercise early P= (max0.X/(1+Rf)n)
american P=max(0. X-S) A>E due to immediate execution value is a bit different
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