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Upper bounds for american futures options: A note
Author(s) -
Chaudhury Mohammed M.,
Wei Jason
Publication year - 1994
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.3990140109
Subject(s) - futures contract , citation , library science , philosophy , computer science , economics , finance
where EC and EP are conventional European futures option prices for call and put, respectively, and are given by Black (1976) for lognormal futures prices. Pricing equations (1) and (2) apply to pure American call (PAC) and pure American put (PAP) options as well [Lieu (1990)I even if the interest rate is stochastic [Chen and Scott (1992)], since the pure European option price never falls below the intrinsic value of the option. Building on these pure options results and using rational pricing arguments [Merton ( 1 973)], new upper bounds for conventional American options are proposed in this note.