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European Put Call Parity And The Early Exercise Premium For American Currency Options
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Book Synopsis European Put-Call Parity and the Early Exercise Premium for American Currency Options by : Geoffrey Poitras
Download or read book European Put-Call Parity and the Early Exercise Premium for American Currency Options written by Geoffrey Poitras and published by . This book was released on 2016 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The European put-call parity condition is used to estimate the early exercise premium for American currency options traded on the Philadelphia Stock Exchange. Using a sample of 331 pairs of call and put options with the same exercise price and time to expiration, evidence is provided for early exercise premiums that average 5.03% for put options and 4.60% for call options. The premiums for both call and put options are strongly related to the interest rate differential and time to expiration. These results have implications for the use of European option pricing models in the valuation of American options.
Book Synopsis Put-Call Parity and the Early Exercise Premium for Currency Options by : Chris Veld
Download or read book Put-Call Parity and the Early Exercise Premium for Currency Options written by Chris Veld and published by . This book was released on 2005 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: Put-call parity is used to study the early exercise premium for currency options traded on the Philadelphia Stock Exchange. Using 564 pairs of call and put options evidence is provided that the early exercise premia is on average 5.71% for put options and 6.88% for call options. The premiums for both call and put options are strongly related to time to maturity and the interest rate differential. These results are important when using a European option pricing model for the valuation of American options.
Book Synopsis Valuation of Early Exercise Premium on Currency Options by : John Lee
Download or read book Valuation of Early Exercise Premium on Currency Options written by John Lee and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies on American options have shown that European style models do not reflect early exercise premium (EEP). This project expands on the Poitras, Veld and Zabolotnyuk (2006) paper which applies the put-call parity method to currency options data from American options traded at PHLX for EEP. We define a wider range for in-the moneyness and use a rolling volatility for the volatility parameter. We estimate the early exercise premium as a percentage of option price (REEP) for calls and puts to be 7.329%, 6.122%, respectively. We then regress the REEP against moneyness, interest differentials, and time to maturity and volatility. Our results show that REEP is strongly and positively correlated with interest rate differentials and time to maturity. The effect of moneyness is less apparent. The effect of volatility on REEPs of put options is significantly negative, which coincides with the results of Poitras, Veld and Zabolotnyuk (2006).
Book Synopsis Valuation of Early Exercise Premium on Currency Options by : John Lee
Download or read book Valuation of Early Exercise Premium on Currency Options written by John Lee and published by . This book was released on 2006 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies on American options have shown that European style models do not reflect early exercise premium (EEP). This project expands on the Poitras, Veld and Zabolotnyuk (2006) paper which applies the put-call parity method to currency options data from American options traded at PHLX for EEP. We define a wider range for in-the moneyness and use a rolling volatility for the volatility parameter. We estimate the early exercise premium as a percentage of option price (REEP) for calls and puts to be 7.329%, 6.122%, respectively. We then regress the REEP against moneyness, interest differentials, and time to maturity and volatility. Our results show that REEP is strongly and positively correlated with interest rate differentials and time to maturity. The effect of moneyness is less apparent. The effect of volatility on REEPs of put options is significantly negative, which coincides with the results of Poitras, Veld and Zabolotnyuk (2006).
Book Synopsis The Early Exercise Premium in American Put Option Prices by : Malin Engstrom
Download or read book The Early Exercise Premium in American Put Option Prices written by Malin Engstrom and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study estimates the value of the early exercise premium in American put option prices using Swedish equity options data. The value of the premium is found as the deviation of the American put price from European put-call parity, and in addition a theoretical estimate of the premium is computed. The empirically found premium is also used in a modified version of the control variate approach to value American puts. The results indicate a substantial value of the early exercise premium, where the premium derived from put-call parity is higher than the theoretical premium. The premium also increases with moneyness and time left to expiration, while the effect of interest rate and volatility depends on the moneyness of the option. The modified control variate technique works reasonably well relative the theoretical models. In particular, for deep in-the-money options, this technique is superior.
Book Synopsis The Early Exercise Premium for Currency Options by : Yvonne Yip
Download or read book The Early Exercise Premium for Currency Options written by Yvonne Yip and published by . This book was released on 1999 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Probability of Early Exercise by : James N. Bodurtha
Download or read book The Probability of Early Exercise written by James N. Bodurtha and published by . This book was released on 1992 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Early Exercise Premium for Currency Options by : Bertha Hok Yan Wong
Download or read book The Early Exercise Premium for Currency Options written by Bertha Hok Yan Wong and published by . This book was released on 2003 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Early Exercise Premium for Currency Options by : Sharad K. Kalyani
Download or read book The Early Exercise Premium for Currency Options written by Sharad K. Kalyani and published by . This book was released on 1999 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Early Exercise of Foreign Currency Options by : Frank J. Fabozzi
Download or read book Early Exercise of Foreign Currency Options written by Frank J. Fabozzi and published by . This book was released on 2013 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Roll [JFE 1977] demonstrates that the probability of early exercise of equity call options is low for small dividend payouts. Geske and Shastri [JBF 1985] show that unless dividends are small, put equity options would not be exercised early. Subsequently, Shastri and Tandon [JFM 1986] argue that the probability of early exercise of foreign currency options is small since foreign interest rates are analogous to a continuous dividend payout. Based on this observation, they conclude that a European model is well-suited for pricing American foreign currency options, unless the foreign interest rate is unusually high/low for call/put options. This conclusion is supported by the observation that pricing errors of a European option model are insignificant. Our study compares the Barone-Adesi-Whaley [BA-W; JF 1987] American option-pricing model with the Garman-Kohihagen [JIMF 1983] and Grabbe [JIMF 1983] European model and tests the conditions under which foreign exchange options convey opportunities to profit from premature exercise. Our results demonstrate the following. (1) The BA-W model is only advantageous in pricing out-of-the-money, long-term options. (2) The probability of gainful early exercise of puts is more sensitive than that of calls to the interest rate differential, time to maturity, and volatility. (3) The critical spot rate in the BA-W model is based on the probability of gainful early exercise on a given date, not after that date. Based on this criterion, we find a large number of opportunities for early exercise among in-the-money options maturing in less than 45 days.
Book Synopsis The Valuation of the American Premium in the Foreign Currency Options Market by : Philippe Jorion
Download or read book The Valuation of the American Premium in the Foreign Currency Options Market written by Philippe Jorion and published by . This book was released on 1987 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Opt Foreign Exc written by Derosa and published by Irwin Professional Publishing. This book was released on 1992-03-22 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well known that foreign exchange is the world's largest financial market. What is less well known is that the market for currency options and other derivatives on foreign exchange is also massive and still growing. This book has been written for end users of currency options and newcomers to the field of foreign exchange. It employs the real-world terminology of the foreign exchange market whenever possible so that readers can make a smooth transition from the text to actual market practice. The opening chapters present a substantive discussion of the spot and forward foreign exchange market and the mechanics of trading currency options. Next, attention turns to the pervasive Black-Scholes-Merton option pricing model as applied to currency options. An examination of currency futures options follows. The final chapters are devoted to exotic currency options, with special attention given to a variety of barrier currency options. Average rate, compound, basket, and quantos currency options are also covered. Options on Foreign Exchange, Second Edition is written for traders, corporate treasurers, risk managers, and students of financial markets.
Book Synopsis Financial Options by : Stephen Figlewski
Download or read book Financial Options written by Stephen Figlewski and published by McGraw-Hill Professional Publishing. This book was released on 1990 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Early Exercise Premium in American Option Prices by : Lindsey McMurray
Download or read book The Early Exercise Premium in American Option Prices written by Lindsey McMurray and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The London stock options market trades both European and American style options on the same underlying asset--the FT- SE 100 stock index. This paper exploits this special feature to provide direct empirical evidence on the value of early exercise in American option prices. Significant early exercise premium is found in both calls and puts. The premium is significantly higher than that predicted analytically by the binomial option valuation model. The magnitude of this premium for in-the-money options is also considerably higher than that documented for the U.S. market on the basis of an imperfect proxy. Consistent with theoretical expectations, the premium of calls increases with the degree to which the option is in the money and with the dividends on the last ex-dividend date before option maturity; and the premium for puts is positively related to the degree to which the option is in the money and to the time to maturity, and negatively related to the dividends on the last ex-dividend date prior to expiration. The early exercise premium for calls is sometimes economically significant even when there is no possibility of dividends before maturity. At the same time, the American option often trades at a discount to its European counterpart greater in magnitude than the median bid-ask spread, though this does not necessarily signal economically significant pricing inefficiency.
Book Synopsis An Introduction to Options and Futures by : Don M. Chance
Download or read book An Introduction to Options and Futures written by Don M. Chance and published by Chicago : Dryden Press. This book was released on 1991 with total page 632 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Currency Options Handbook by : William Sutton
Download or read book The Currency Options Handbook written by William Sutton and published by . This book was released on 1988 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Probabilities and Values of Early Exercise by : James N. Bodurtha
Download or read book Probabilities and Values of Early Exercise written by James N. Bodurtha and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article analyzes fundamental differences between American spot and futures options. These options differ in their early exercise probabilities and values, and in option buyers' exercise behavior. We find two key results: one theoretical and one empirical. First, unlike spot options, some futures options' early exercise probabilities and values do not correspond. Specifically, increased volatility raises the early exercise premium for in-the-money futures calls, but lowers the associated early exercise probability. Similarly, increasing the domestic interest rate raises the futures put early exercise premium, while lowering the associated early exercise probability. Second, observed early exercise experience of Philadelphia Stock Exchange spot options and Chicago Mercantile Exchange futures options is consistent with optimal early exercise behavior prescribed by a standard American option pricing model. Both types of option exercise events occur at or near the modeled early exercise boundaries.
