Question: The exercise payoff of an American capped call with the cap L is given by max(min(S, L) X, 0), L > X. Let S

The exercise payoff of an American capped call with the cap L is given by max(min(S, L) − X, 0), L > X. Let S∗cap(τ) and S∗(τ) denote the early exercise boundary of the American capped call and its noncapped counterpart, respectively. Show that (Broadie and Detemple, 1995)

Scap (t) = min(S* (T), L).

Scap (t) = min (S* (T), L).

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