Question
Explain why the arguments leading to put-call parity for European options cannot be used to give a similar result for American options.
Step 1
This relationship holds true under certain assumptions, such as the absence of dividends and transaction costs, and the availability of risk-free borrowing and lending. However, when it comes to American options, which can be exercised at any time before Show more…
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Explain why an American option is always worth at least as much as a European option on the same asset with the same strike price and exercise date.
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