What is the difference between valuing an American and a European option using a tree?
A) The value of u is higher for American options
B) The value of u is lower for American options
C) The time steps for American options are not equal
D) It is necessary to do two calculations at nodes where the option is in the money

Question

Quizplus · Accepted Answer

When valuing American options it is necessary to calculate at each in-the-money node how much the option is worth if it is exercised (i.e.,the intrinsic value at the node)and how much it is worth if it is not exercised (i.e.,the roll back value)

What Is the Difference Between Valuing an American and a European