Why will the value of an american put always be greater

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Why will the value of an American put always be greater than or equal to the value of a corresponding European put? Options listed for Digital Equipment were used in the text as an example of option price estimation using implicit variance. The implicit variance from the January 45 option resulted in estimated call prices lower than actual call prices for the April 45 and October 45 options.

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Assuming the Black-Scholes OPM is correct, and that all assumptions of the model are met in the marketplace:

What hedge (i.e., riskless) portfolio can be formed to make arbitrage profits with Digital Equipment April 45 options?

Reference no: EM131247148

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