Pricing American options is a more complex task than for European options since they can be exercised any time up to expiry. The moment the holder chooses to exercise the options depends on the spot price of the underlying asset S t . In this sense the exercising time is a random variable itself. The Black-Scholes differential equation continues to hold as long as the options are not exercised. However, the boundary conditions are so complicated that an analytic solution is not possible. In this section we study American options in more detail while the numerical procedures of pricing will be discussed in the next section.
KeywordsOption Price American Option Strike Price Underlying Asset Spot Price
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