The Early Exercise Premia of American Put Options on Stocks

Hyun Mo Sung

Review of Quantitative Finance and Accounting, 1995, vol. 5, issue 4, 365-73

Abstract: Using the put-call parity, this paper finds that early exercise premia of short-lived American put options on stocks account for a significant portion of put prices. This finding holds even for out-of-the-money put options. The magnitude of the early exercise premia of American put options with no dividend is positively related to the degree of moneyness, time to maturity of the put option, and the volatility. The magnitude of the early exercise premia of American put options with dividend is positively related to the degree of moneyness and the risk-free interest rates. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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