Using a binomial tree explanation,explain the situation in which an American option would alter the pricing of an option.

Question

Quizplus · Accepted Answer

The Answer is The value of an American option at a node is the maximum of its intrinsic value or the discounted value of the subsequent nodes.Early exercise permits the realization of the intrinsic value,should it be the higher number.European options may not consider this potential gain.

Using a Binomial Tree Explanation,explain the Situation in Which an American