Put-call parities and the value of early exercise for put options on a performance index

• Published in: The journal of futures markets Vol. 16; no. 1; pp. 71 - 80
• Main Authors: De Roon, Frans, Veld, Chris
• Format: Journal Article
• Language: English
• Published: New York Wiley Subscription Services, Inc., A Wiley Company 01.02.1996; Published by J. Wiley in affiliation with the Center for the Study of Futures Markets, Columbia University; Wiley Periodicals Inc
• Subjects: Economic models; Parity; Put & call options; Statistical analysis; Studies; Netherlands
• ISSN: 0270-7314; 1096-9934
• DOI: 10.1002/(SICI)1096-9934(199602)16:1<71::AID-FUT4>3.0.CO;2-E

A study calculates the value of early exercise of a put option from deviations of the European put-call parity, using options on a performance index. Closing prices for options on the DAX index and traded on the Amsterdam Stock Exchange are used for the period May 12, 1992 to October 7, 1993. As hypothesized, the premium for early exercise is significantly and positively correlated with the moneyness, the volatility of the index and with interest rate. Contrary to expectations, a negative relationship with time to maturity is found. However, this relationship is not significant. The results may be particularly useful for the development of a correct model for pricing of American put options.