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Why does one party receive a premium when dealing with an option? Would an American-style option...

Why does one party receive a premium when dealing with an option? Would an American-style option or a European-style option have a larger premium? Why or why not?

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Answer #1

One arty received premium majorly the option seller of option as he takes on the risk just like an insurance company who offers insurance but charges premium for customers, option buyer in this case.

Both American and European options have same premium as their only difference being that Americans option be exercised anytime before expiry while European options be exercised at expiry.

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