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The Early Exercise Premium in American Put Option Prices by Malin Engstrom, Lars L. Norden :: SSRN

Please refer to this blog post for more information. 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 Early Exercise Premium in American Put Option Prices by Malin Engstrom, Lars L. Norden :: SSRN

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 to the theoretical models.

In particular, for deep in-the-money options, this technique is superior. Journals Books Register Sign in Sign in using your ScienceDirect credentials Username.

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Journal of Multinational Financial Management Volume 10, Issues 3—4 , December , Pages The early exercise premium in American put option prices. Author links open the author workspace. Opens the author workspace Opens the author workspace Department of Corporate Finance, School of Business, Stockholm University, S 91 Stockholm, Sweden.

Abstract This study estimates the value of the early exercise premium in American put option prices using Swedish equity options data. Keywords Early exercise premium. Modified control variate technique. Check if you have access through your login credentials or your institution.

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