4 ms·
This is subtly incorrect. An American option should be priced assuming that the option is optimally exercised, otherwise this would create a soft arbitrage opp
by auc 3y ago
This is subtly incorrect.
An American option should be priced assuming that the option is optimally exercised, otherwise this would create a soft arbitrage opportunity. The difficulty is determining when the option is optimally exercised because it depends on several potentially unknown and difficult to model factors.