Explanation:
For a marketable American call option on a non-dividend-paying stock, early exercise is theoretically never optimal.
D. None of the above
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Q-182.1. Consider the following conditions with respect to a marketable American CALL option on a non-dividend-paying stock:
I. Risk-free rate (Rf) is increasing
II. Volatility (sigma) of underlying stock is decreasing
III. The underlying stock price (S) is increasing
IV. Investor has good reason to think stock is currently (S0) overpriced
Under which of the above condition(s) is it theoretically optimal, or increasingly advisable, to “early” exercise (i.e., prior to expiration) the marketable American CALL option on the non-dividend-paying stock?
A
III. Only
B
II., III. and IV.
C
I., II., III. and IV.
D
None of the above
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