Min of American Put

CFA Level I
#1

I thought it should be the greater of 0 or X - S, but there are no that answers. I had to go with C, the greater of 0 or PV of X -S.

#2

yeah me too. i was confused but eventually chose PV of X - S

#3

i agree

#4

it was tricky, but i think 0 is the answer

#5

strike - price, no PV. It’s ok, you’ll make it up from other Q’s.

#6

I did think 0 again. However, does not the PV of X is a little closer, since the PV of X is lower than X and the Q asks for a Min.

#7

i thought it was just intrinsic value - how much it’s in the money or whatever. X-S

#8

PV is only for european options

#9

agreed. x-s

#10

Rapala might be right.

#11

I also thought x-s

#12

I think it involves PV, you will try to exercise as late as possible to get the benefit of TVM while it is in the money.

#13

Put absolutely does not involve PV for american options

#14

x-s for me.

#15

if i remember correctly, there was an answer “the intrinsic value” and that’s what i put

#16

I get the formula- p=min[0,x-s]. but when i look at that i see that the lower bound is zero. so if i have a question that doesnt give price or strike information and they just ask what is the lower bound, i would have to say zero

#17

I agree with th123, The question asked something like “most likely asnwer” so all the PV solutions (C and D) are wrong. I picked A. Zero.

#18

But didn’t the question ask for European put?

#19

C’mon - An American put has to be worth at least as much as you can exercise it for right now. Forget the PV thing if X =50 and S = 40 you can borrow $40, buy the stock for $40, exercise the put and sell for 50, repay the loan and pocket $10. Answer = Max(0, X - S)

#20

pv is for european put since you can’t exercise is before maturity… my thinking was that put can be either out of money, then its 0, or in the money, and the answer choice was there i think it was “either intrinsic value or 0” and intrinsic value is x - s