Estimating the Early Exercise Premium of American Put Index Options

Authors

  • Ako Doffou Sacred Heart University, United States

DOI:

https://doi.org/10.32890/ijbf2009.6.1.3

Keywords:

Option prices, early exercise, moneyness, S&P American put option

Abstract

This paper examines empirically the value of early exercise by testing the ability of two American put valuation models to predict the early exercise premium for the S&P 100 American put options. An accuracy test and a quality test are performed on (1) the MacMillan and Barone-Adesi and Whaley model, and (2) the Carr, Jarrow and Myneni model. The test results show that early exercise premium is significant regardless of moneyness. Moreover, consistent with the theory, the value of early exercise is significantly negatively related to moneyness and interest rates and significantly positively related to time to maturity and to the volatility of the underlying index. Both American put valuation models examined do not fully capture the value of early exercise embedded in American put prices.

 

References

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Published

17-03-2009

Issue

Vol. 6 No. 1 (2009): International Journal of Banking and Finance (IJBF) Vol. 6, No.1, 2009

Section

Articles

How to Cite

Doffou, A. (2009). Estimating the Early Exercise Premium of American Put Index Options. International Journal of Banking and Finance, 6(1), 31-47. https://doi.org/10.32890/ijbf2009.6.1.3

Research impact

Harvested 2026-09-07
3 citations, from OpenAlex — the highest of the sources checked

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Identifiers DOI 10.32890/ijbf2009.6.1.3 OpenAlex W2101168338