Expectation vs No Arbitrage Approach to value early exercise american options

CFA Level II Derivatives
#1

Hello,

I’m looking for some clarification. The curriculum states, when early exercise American Options have value the only approach is the no-arbitrage approach.

Example 6 (Reading 41 Binomial Option Valuation) is an early exercise american option yet, in the solution the example is solved via the expectation approach. Please let me know if there is something in the example I’m overlooking.When I calculate the value using the no arb approach I get a value of 4.50 vs 4.28 using the expectation approach.

Thanks,

B

#2

I have the exact same question. Perhaps they mean you can’t use the Expectations Approach unless you check every node for early exercise?