Theory of Rational Option Pricing
Theory of Rational Option Pricing
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D.
-6- From (5), it follows directly that Theorem I. Holds for American warrants with a fixed exercise price over the life of the contract. The right to exercise an option prior to the expiration data always has non-nega- tive value. It is important to know when this right has zero value, since in that case, the values of an European and American option are the same. In practice, almost all options are of the American type while it is always easier to solve analytically for the value of an Euro...pean option. Theorem I. Significantly tightens the bounds for rational warrant prices over (3). In addition, it leads to the following two theorems: Theorem II. If the conditions for Theorem I. Hold, an American warrant will never be exercised prior to expiration, and hence, it has the same value as an European warrant.
Proof: if the warrant is exercised, its value will be Max[0, S-E]. But from Theorem I, F(S, T;E) ^ Max[0, S-EP(T) ] which is larger than Max[0, S-E] for T > because, from (9), P(t)
What to read after Theory of Rational Option Pricing?
You can find similar books in the "Read Also" column, or choose other free books by Robert C Merton to read onlineMoreLess
To quickly assess the difficulty of the text, read a short excerpt:
D.
-6- From (5), it follows directly that Theorem I. Holds for American warrants with a fixed exercise price over the life of the contract. The right to exercise an option prior to the expiration data always has non-nega- tive value. It is important to know when this right has zero value, since in that case, the values of an European and American option are the same. In practice, almost all options are of the American type while it is always easier to solve analytically for the value of an Euro...pean option. Theorem I. Significantly tightens the bounds for rational warrant prices over (3). In addition, it leads to the following two theorems: Theorem II. If the conditions for Theorem I. Hold, an American warrant will never be exercised prior to expiration, and hence, it has the same value as an European warrant.
Proof: if the warrant is exercised, its value will be Max[0, S-E]. But from Theorem I, F(S, T;E) ^ Max[0, S-EP(T) ] which is larger than Max[0, S-E] for T > because, from (9), P(t)
What to read after Theory of Rational Option Pricing?
You can find similar books in the "Read Also" column, or choose other free books by Robert C Merton to read onlineMoreLess
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