Question

In: Finance

- If you do not want to early-exercise the call, you should hold the option until...

- If you do not want to early-exercise the call, you should hold the option until expiration.

True / False

- It can be optimal to early-exercise an American currency call option.

True / False

- It can be optimal to early-exercise an American put option on a non-dividend-paying stock.

True / False

- The price of an American oil put option can never decline with an increase in time to expiration.

True / False

The price of a European call option on a non-dividend-paying stock can never decline with an increase in time to expiration.

True / False

- The price of a European put option on a dividend-paying stock can decline with an increase in time to expiration.

True / False

If it is optimal to exercise a 100-strike call option, it is also optimal to exercise an otherwise identical 110-stike call.

True/False

Solutions

Expert Solution

If you do not want to early-exercise the call, you should hold the option until expiration.

True

- It can be optimal to early-exercise an American currency call option.

False

Early exercising is not an optimal option because if you hold the strike price X till the expiration date by which the holder can save the interest component on the call option.

- It can be optimal to early-exercise an American put option on a non-dividend-paying stock.

True

suppose the stock price reaches zero, then the option holder gains from exercising rather than waiting as they can save the interest on the payout X-S may not yield much

- The price of an American put option can never decline with an increase in time to expiration.

True

it increases with an increase in time of expiration

The price of a European call option on a non-dividend-paying stock can never decline with an increase in time to expiration.

True

- The price of a European put option on a dividend-paying stock can decline with an increase in time to expiration.

True

If it is optimal to exercise a 100-strike call option, it is also optimal to exercise an otherwise identical 110-stike call.

True


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