Put-Call Parity and the Early Exercise Premium for Currency Options

Veld, Chris; Poitras, Geoffrey; Zabolotnyuk, Yuriy

doi:10.2139/ssrn.821805

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Put-Call Parity and the Early Exercise Premium for Currency Options

8 Pages Posted: 19 Oct 2005

See all articles by Chris Veld

Geoffrey Poitras

Simon Fraser University (SFU) - Finance Area

Yuriy Zabolotnyuk

Carleton University

Date Written: September 30, 2005

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 premia is 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

JEL Classification: G10, G12, G13, G14

Suggested Citation: Suggested Citation

Veld, Chris and Poitras, Geoffrey and Zabolotnyuk, Yuriy, Put-Call Parity and the Early Exercise Premium for Currency Options (September 30, 2005). Available at SSRN: https://ssrn.com/abstract=821805 or http://dx.doi.org/10.2139/ssrn.821805