Friday, May 15, 2009
Hull American Option Price Fallacies
Hull says American put is best exercised immediately and american call is optimal at expiry like a european. Is this really true?
At first it seems really clever and model show clearly this. But if we change the market assumptions only a tiny bit, everything falls down.
I could not detail everything in a blog post so I created a static web page about it. Everything was produced in Java using algorithm found in popular books and graphs through JFreeChart.