The premium of an American put option is generally greater than that of the European put option because:

A) the American option allows for early exercise
B) the European option allows for early exercise
C) the American option generally shows more volatility
D) the European option generally shows more volatility

Question

The premium of an American put option is generally greater than that of the European put option because:

A) the American option allows for early exercise
B) the European option allows for early exercise
C) the American option generally shows more volatility
D) the European option generally shows more volatility

Quizplus · Accepted Answer

The option premium of an American option is greater than or equal to the option premium of an otherwise identical European option.The American option can be exercised at any time up to expiration,while the European option cannot be exercised until the expiration date.This right is valuable.

The Premium of an American Put Option Is Generally Greater