Put-call parity and the early exercise premium for currency options

Citation

Poitras G, Veld C & Zabolotnyuk Y (2007) Put-call parity and the early exercise premium for currency options. Review of Futures Markets, 16, pp. 159-169. http://www.rfmjournals-archive.com/

Abstract
Put-call parity is used to study the early exercise premium for currency options traded on the Philadelphia Stock Exchange. Using 564 pairs of call and put options evidence is provided that the early exercise premiums are on average 5.71% for put options and 6.88% for call options. The premiums for both call and put options are strongly related to time to maturity and the interest rate differential. These results are important when using a European option pricing model for the valuation of American options.

Keywords
Put-call parity; Currency options; Early exercise premium; Black-Scholes option pricing model; Stock exchanges United States; Options (Finance) United States; Investment analysis United States

Journal
Review of Futures Markets: Volume 16

People

Chris Veld