American VS European

Quantitative Finance Level 1

Which option is worth more (more than or equal to)?

A) An American call on the $10 strike that expires in January
B) An European call on the $10 strike that expires in January

Depends on the currency exchange rate European, because European Union American, because you can do more with it European, because you can do more with it American, because America

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Calvin Lin by Calvin Lin

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1 solution

Calvin Lin Staff
Feb 10, 2015

Since the American option can be exercised at any point in time, it is worth more than the European option.

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Hi Calvin, in case of a non dividend paying stock the American and the European call options have equal value, as it is less valuable to exercise an American call (on a non dividend paying stock) in its lifetime. Please mention "dividend paying stock" in the question.

Sourav Agarwal - 5 years, 6 months ago

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Thanks. I've clarified what I was going for, as opposed to attempting to list out all of the possible scenarios where the prices could be equal.

Calvin Lin Staff - 5 years, 6 months ago

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