American option, Portfolio Management

It is an option that can be applied anytime in its lifetime. American options permit option holders to implement the option at any time previous to and including its maturity date, therefore increasing the value of the option to the holder relative to European options, which may only be applied at maturity. Most of the exchange-traded options are American.

As investors have the autonomy to exercise their American options at any point of time during the life of the contract, they are more precious than European options, which may only be exercised at maturity. Take this example: If you purchased a Ford March Call option in March 2005, completed in March of 2006, you would have the right to use the call option at anytime until its expiration date. If the Ford option been a European option, you would only use the option at the expiry date, in March 2006. During the year, the share price would have been highest optimal for use in December of 2005, but you would have to wait to use your option until March 2006, where it could be out-of-the-money and almost of no value.

Posted Date: 8/4/2012 6:56:40 AM | Location : United States







Related Discussions:- American option, Assignment Help, Ask Question on American option, Get Answer, Expert's Help, American option Discussions

Write discussion on American option
Your posts are moderated
Related Questions
Kinds of Brokers and assistants

The Baumol-Tobin model is a model that explains money holdings in terms of a transactions demand. That is, money is needed as a medium of exchange to purchase goods and services. T

erd with entity tables and dfd

#questYou have the following limited information upon which to base your decision as to which is the better of two alternative funding arrangements: • Alternative 1 is to arrange f

"Portfolio evaluation provides a feedback mechanism for improving the entire portfolio management process". Explain


1. What are basic assumptions of CAPM? What are the advantages of adopting CAPM model in the portfolio management?


what is the random walk and the efficient market hypothesis?

A word used outside of the United States to explain the stock of publicly held companies that are originated and based in the United States. Investing in American shares can be par