A parity result for American options

Robert L. McDonald and Mark D. Schroder

Journal of Computational Finance

Abstract: ABSTRACT This paper demonstrates that when the price of the underlying asset is governed by geometric Brownian motion the price of a call option with underlying asset price S, strike price K, interest rate ã, and dividend yield ä is equal to the price of an otherwise identical put option with asset price K, strike price S, interest rate ä, and dividend yield ã. The result is true for both European and American options, and implies that the prices of at-the-money American call and put options on futures are equal.

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