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Additionally, Black-Scholes does not account for the possibility of early exercise in American options (versus European options, which it was designed for)
by ryeights 7y ago
Additionally, Black-Scholes does not account for the possibility of early exercise in American options (versus European options, which it was designed for)
- dragontamer 7y agoMore like Black-Scholes fails to account for dividends, which is the only reason why you'd want to exercise early. Under normal circumstances, a call option is always more valuable than the stock itself. The exception is of course, the dividend. True owners of the stock will receive the dividend, but call option holders will NOT. However, for any stock without a dividend (ex: AMD, Tesla, etc. etc.) American vs European style doesn't seem to matter. Its always better to hold onto the option of buying a stock, rather than being "forced" to buy the stock.
- rabidrat 7y ago> Its always better to hold onto the option of buying a stock Tax laws change that equation significantly.