The lower bound of a European put on a non-dividend paying stock is lower than the intrinsic value of an American put.

Question

Quizplus · Accepted Answer

This is because an American put gives the holder the option to exercise early, meaning they can sell the underlying asset before the expiration date. Therefore, the holder of an American put has more flexibility and their option is worth more, making the intrinsic value higher than that of a European put.

The Lower Bound of a European Put on a Non-Dividend