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Early Exercise of American Put Options: Investor Rationality on the Swedish Options Market
Stockholm University, Faculty of Social Sciences, School of Business.
Stockholm University, Faculty of Social Sciences, School of Business.
2000 (English)In: Journal of futures markets, ISSN 0270-7314, E-ISSN 1096-9934, Vol. 20, 167-188 p.Article in journal (Refereed) Published
Abstract [en]

Using Swedish equity option data, this study investigates how well the actual exercise behavior of American put options corresponds to the early exercise rules. The optimal exercise strategy is established in two ways. First, the critical exercise price, above which a put option should be exercised early, is computed and compared to the actual exercise price. Second, the exercise value of the option is compared to its market bid price. The results show that most early exercise decisions conform to rational exercise behavior, even though a large number of failures to exercise are found. Most of the faulty exercises can also be discarded after a sensitivity analysis, although several failures to exercise are considered irrational, even after taking transaction costs into account.

Place, publisher, year, edition, pages
2000. Vol. 20, 167-188 p.
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-43360DOI: 10.1016/S1042-444x(00)00025-6OAI: oai:DiVA.org:su-43360DiVA: diva2:356020
Available from: 2010-10-09 Created: 2010-10-09 Last updated: 2017-12-12Bibliographically approved

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