Why must the price of an American call option on a stock that pays no dividends always
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Question:
- Why must the price of an American call option on a stock that pays no dividends always be higher than its intrinsic value? How can the price of an American call option be determined from the price of a European call option on the same stock with the same time to expiry? Explain.
- Is it ever optimal to exercise an American put option before its expiration date, assuming the underlying stock pays no dividends? Explain your answer with reference to the put-call parity relationship.
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