A situation in which early exercise of an American put can be justified is A)bankruptcy B)merger C)if Xexceeds S₀ by greater than any transaction costs. D)both a and b E)both a and b and c

Question

Quizplus · Accepted Answer

The only situation where early exercise of an American put can be justified is in the event of the underlying asset becoming worthless, such as in the case of bankruptcy. In all other scenarios, it is more advantageous to wait until closer to expiration to exercise the put option.

A Situation in Which Early Exercise of an American Put