Microsoft PowerPoint - PoF.ppt

ƒ 238

Unfortunately

no exact analytic formulae for the value of

American calls and puts

have been produced. There are however

numerical procedures (e.g. Monte

Carlo simulations) that provide

solutions.

ƒ

Note: Since the

American call price equals the European call price

for a non-dividend paying stock

, the BS formula also gives the price

of an American call on a non-dividend paying stock. (Remember: Early exercise of an American call on a

non-dividend paying stock is never

optimal.)
Derivative securities: Options - Black-Scholes modelBlack-Scholes model: Pricing formula