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John Hull, Options, futures, and other derivatives 英文版
第7页，Table 1.2. 下面第3段解释这个表格时一句话"A put with a $25 strike price should be immediately. That is why the price is the same for all maturities." 不理解前一句"A put with a $25 strike price should be immediately.“ 为什么？这是一个规定吗？  

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关键词：hull hul derivatives Derivative Immediate should 英文版 price

表示对着第八版教材找了很久这句话没找着。。。。手头木有第七版了，LZ可否发个图？

You miss a word

" the put with a $25 strike price should be exercised immediately"

This is not a rule, but an optimal decision. You will learn later

American put option, if deep in the money should be exercised immediately. The intuition is that, for put option, you are selling an stock and get the cash K. If you get K earlier you can get more interest. If you wait you will lose more interest. That is why you should exercise early.
best,

请见附件。

Chemist_MZ 发表于 2014-1-20 06:56
You miss a word

" the put with a $25 strike price should be exercised immediately"

Thanks for your reply! Your answer is reasonable, but I am still not quite sure. Your answer suggests that if a put option is deep in money, then it should be exercised immediately. I agree with this and think this is mainly for the owner of the option. My question is: does this also affect the PRICING of put options as in the example mentioned above?

euser2011 发表于 2014-1-20 16:41
Thanks for your reply! Your answer is reasonable, but I am still not quite sure. Your answer sugge ...

OK, if the options exercised, the price should be equal to the intrinsic value. For put it's K-St.

if it is not, think of the following two situations.

if the price is less than K-St, then we are happy, because we can buy a put with P<K-St, and exercise it immediately exercise it and get K-St. This is an arbitrage. In fact American option's price can never go below the intrinsic value.

if the price is larger than K-St, then the decision of exercising the option is wrong. Because you can sell the option to get P>K-St instead of exercise it (get K-St).

So if the option is exercised, it's price should be equal to K-St. That is how the pricing is affected.

best,