(a) Show that a European put on a non-dividend-paying stock can be worth less than its intrinsic value. Give an explicit condition on under which for every model. (b) Deduce that an American put is worth strictly more than the European put for such , if . (c) Why does the argument of Proposition 8.2.4 fail for puts?
M08 · Problem 5 ★★
Early exercise of puts
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