The lower bound of a European call on a non-dividend paying stock is lower than the intrinsic value of an American call.

Question

Quizplus · Accepted Answer

The lower bound of a European call on a non-dividend paying stock is equal to the intrinsic value, which is the same lower bound for an American call on the same stock. The intrinsic value is the maximum of zero or the difference between the stock price and the exercise price (S - X for calls), and it does not depend on the option being American or European.

The Lower Bound of a European Call on a Non-Dividend