OK, so first I found a put and call option with same strike price and maturity for both American-style and European-style options. I selected the ones closest at-the-money with a maturity of 36 days.

Option style - Wikipedia

Data looks like this for the European:. What is the reason for the difference between American style and European style options when they have the same exercise price and maturity? The key difference between American and European options relates to when the options can be exercised:. An American option gives you the opportunity to capture a dividend payment. The call buyer may exercise early and get that dividend as well.

This is the one difference in value I can cite. By posting your answer, you agree to the privacy policy and terms of service. Sign up or log in to customize your list.

Stack Exchange Inbox Reputation and Badges. Questions Tags Users Badges Unanswered. Join them; it only takes a minute: Here's how it works: Anybody can ask a question Anybody can answer The best answers are voted up and rise to the top.

Difference between European and American options. Appreciate some help with a problem i am facing OK, so first I found a put and call option with same strike price and maturity for both American-style and European-style options.

Data looks like this for the European: T 0, nonqualified stock options amt price 7, Tom Clever 11 1 2.

Where did you get this data?

financial literacy - Why are American-style options worth more than European-style options? - Personal Finance & Money Stack Exchange

Tom, please select your answer. The key difference between American and European options relates european vs american options pricing when the options can be exercised: A European option may be exercised only at the expiry date of the option, i.

An American option on the other hand may be forex dinar value at any time before the expiry date. This is why American options are in general more expensive because the are exercisable any time.

Binomial options pricing model - Wikipedia

Yes I knew that, but was hoping it was something more to it. If I were to interpret my results, it seems kinda week to only point to the exercise dates. Do you know of anything else that might trigger the difference? How did get or calculate the data.

The delta between the two prices seems way to high, in particular considering the short T period. By the way a put price of 0 seems to be unrealistic for an option which could get into european vs american options pricing money very soon. To be honest I got it myself from CBOE website.

It is for a tutorial I am having tomorrow. Consider a put and call option with same strike price and maturity for both American-style and European-style options. Choose options that are closest at-the-money and choose a maturity between 1 month and 1 year for all options used. Except for the fact that the European put price is unrealistically low and should be at least 4 USD, the only thing that comes to my mind is dividends.

Only if the underlying is a dividend paying stock and the dividend payment is in the next 36 days, a significant difference between American and European put prices is realistic.

There may be other reasons for early exercise having value, I'm just not aware of them. As far as I know, the one you cited is the only real reason to exercise early. Otherwise, you're sacrificing the time value that the option holds based upon the time until expiration; as long as the market is liquid enough i.

This of course assumes that the option is in the money, but you probably wouldn't be exercising it if it wasn't.

If I learn something useful today I will post it! Have a good day: Sign up or log in StackExchange.

Sign up using Facebook. Sign up using Email and Password. Post as a guest Name. Tom options call-options put-options options-assignment share improve this question. MathOverflow Mathematics Cross Validated stats Theoretical Computer Science Physics Chemistry Biology Computer Science Philosophy more 3.

Meta Stack Exchange Stack Apps Area 51 Stack Overflow Talent.