Bunch and Johnson (2000) gave the following three different definitions of the optimal exercise price of an

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Bunch and Johnson (2000) gave the following three different definitions of the optimal exercise price of an American put.

1. It is the value of the asset price at which one is indifferent between exercising and not exercising the put.

2. It is the highest value of the asset price for which the value of the put is equal to the exercise price less the stock price.

3. It is the highest value of the asset price at which the put value does not depend on time to maturity.

Give the financial interpretation to the above three definitions.

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Mathematical Models Of Financial Derivative

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Authors: Yue-Kuen Kwok

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Question Posted: Dec 05, 2023 01:13 AM

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Bunch and Johnson (2000) gave the following three different definitions of the optimal exercise price of an

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1 Financial Interpretation The first definition suggests that the optimal exercise price is the leve...View the full answer

Mathematical Models Of Financial Derivative

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