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The Value of Early Exercise in Option Prices: An Empirical Investigation

Terry L. Zivney
The Journal of Financial and Quantitative Analysis
Vol. 26, No. 1 (Mar., 1991), pp. 129-138
DOI: 10.2307/2331247
Stable URL: http://www.jstor.org/stable/2331247
Page Count: 10
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Value of Early Exercise in Option Prices: An Empirical Investigation
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Abstract

Previous studies in the valuation of American options apparently undervalue the right of early exercise. This study uses actual prices from the CBOE's S&P 100 option instead of model-generated values. Deviations from the theoretical put-call parity relationship are caused by the possibility of early exercise. These deviations are used to infer the value of early exercise. The actual value of early exercise is both statistically and economically significant. As expected from theoretical considerations, the value of early exercise for put options is greater than for call options.

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