Volume 13, Numbers 1 & 2 / March/June , Pages 1-154
European Put-Call Parity and the Early Exercise Premium for American Currency Options
Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 39-54
Geoffrey Poitras , Simon Fraser University, Canada    Corresponding Author
Chris Veld , University of Stirling, U.K.
Yuriy Zabolotnyuk , Carleton University, Canada

The European put-call parity condition is used to estimate the early exercise premium for American currency options traded on the Philadelphia Stock Exchange. Using a sample of 331 pairs of call and put options with the same exercise price and time to expiration, evidence is provided for early exercise premiums that average 5.03% for put options and 4.60% for call options. The premiums for both call and put options are strongly related to the interest rate differential and time to expiration. These results have implications for the use of European option pricing models in the valuation of American options.

Keywords : European put-call parity; currency options; early exercise premium
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