Let p(S, T, X) denote the value of a European put on a stock selling at S

Question:

Let p(S, T, X) denote the value of a European put on a stock selling at S dollars, with time to maturity T, and with exercise price X, and let P(S, T, X) be the value of an American put.

a. Evaluate p(0, T, X).

b. Evaluate P(0, T, X).

c. Evaluate p(S, T, 0).

d. Evaluate P(S, T, 0).

e. Compare your answers to parts

(a) and (b). What do you conclude about the possibility that American puts may be exercised early? p-69

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