Volume 16 | Issue 2 | Article 1
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Put-Call Parity and the Early Exercise Premium for Currency Options
Put-call parity is used to study the early exercise premium for currency options traded on the Philadelphia Stock Exchange. Using 564 pairs of call and put options, we provide evidence that the early exercise premiums are on average 5.71% for put options and 6.88% for call options. The premiums for both call and put options are strongly related to time to maturity and the interest rate differential. These results are important when using a European option pricing model for the valuation of American options.
