The implication of missing the optimal-exercise time of an American option

@article{Chockalingam2015TheIO,
  title={The implication of missing the optimal-exercise time of an American option},
  author={Arunachalam Chockalingam and Haolin Feng},
  journal={European Journal of Operational Research},
  year={2015},
  volume={243},
  pages={883-896}
}
The optimal-exercise policy of an American option dictates when the option should be exercised. In this paper, we consider the implications of missing the optimal exercise time of an American option. For the put option, this means holding the option until it is deeper in-the-money when the optimal decision would have been to exercise instead. We derive an upper bound on the maximum possible loss incurred by such an option holder. This upper bound requires no knowledge of the optimal-exercise… CONTINUE READING

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