Question

American options models

why the choice of model can be important?

Answer 1

An American option is a version of an options contract that allows holders to exercise the option rights at any time before and including the day of expiration. American options outline the timeframe when the option holder can exercise their option contract rights. These rights allow the holder to buy or sell depending on if the option is a call or put the underlying asset, at the set strike price on or before the predetermined expiration date. American style options can be exercised anytime between purchase and expiration date.

Choice of a model can be important because options trading can be complex, especially since several different options can exist on the same underlying, with multiple strikes and expiration dates to choose from. Finding the right option to fit your trading strategy is therefore essential to maximize success in the market.