Consider the following at-the-money options,all of the same maturity: a vanilla European call ( $C _ { E }$ ),an American vanilla call ( $C _ { A }$ ),a fixed-strike lookback call ( $C _ { L }$ ).Which of the following is correct?
A) $C _ { L } \leq C _ {E } \leq C _ { A }$.
B) $C _ { L } \leq C _ {E } \leq C _ { A }$
C) $C _ {E } \leq C _ { A } \leq C _ { L }$
D) $C _ { A } \leq C _ { E } \leq C _ { L }$.

Question

Quizplus · Accepted Answer

A fixed-strike lookback call option ($C_L$) will always have a higher value than both European ($C_E$) and American ($C_A$) vanilla call options because it provides the holder with the most advantageous strike price over the option's life. Between European and American call options, the American option ($C_A$) may be more valuable than the European ($C_E$) because it can be exercised at any time before expiration, potentially capturing more value. Therefore, $C_E \leq C_A \leq C_L$ is the correct ordering.

Consider the Following At-The-Money Options,all of the Same Maturity: a Vanilla