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Q4. American call option price must be equal to European option price if the underlying asset...

Q4. American call option price must be equal to European option price if the underlying asset does not pay dividends. Do you agree? Please prove your conclusion.

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Answer #1

No, I do not agree because even if the company is paying dividend, there are various other factors which are associated for differential in their price because American options can be exercised before the maturity while European option cannot be exercised before the maturity, so there are various other elements like time factor element which are embedded into the overall pricing of the option of American option and the European option since they do not have an option for early exercise they are not valued as per the normal standards of option.

So I do not agree with this statement.

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