Hi All!
Please don't mind I'm a beginner in math finance.
Would anyone be able to explain and mathematically conclude the upper bound for the American Put option, that is price of the American put(V0Ap) is less than or equal to the price of the European Call Option(VoEC) + the price of the derivative security is payoff Gn=K-Sn, assuming no dividend.
I began with the risk neutral conditional expectation of the American put intrinsic value at a optimal stopping time which is equal to the price of the American put(V0AP). Then how does this formula is less than or equal to the price of the American Call Option(which is the European Call exercised at optimal time) + K-So.
Maybe I'm confused with the optimal stopping time and the fair price. Because American Call has to be optimally exercised at expiry, then what happens if the American Put exercised at the same time is not optimal?
THANKS!!
Please don't mind I'm a beginner in math finance.
Would anyone be able to explain and mathematically conclude the upper bound for the American Put option, that is price of the American put(V0Ap) is less than or equal to the price of the European Call Option(VoEC) + the price of the derivative security is payoff Gn=K-Sn, assuming no dividend.
I began with the risk neutral conditional expectation of the American put intrinsic value at a optimal stopping time which is equal to the price of the American put(V0AP). Then how does this formula is less than or equal to the price of the American Call Option(which is the European Call exercised at optimal time) + K-So.
Maybe I'm confused with the optimal stopping time and the fair price. Because American Call has to be optimally exercised at expiry, then what happens if the American Put exercised at the same time is not optimal?
THANKS!!
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