What Are the Upper and Lower Bounds for an American

question 47

Essay

What are the upper and lower bounds for an American call option?
Explain what would happen in each case if the bound was violated.

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Definitions:

Least Risky

Describes an option or decision that involves the lowest level of risk compared to alternatives.

Expected Income

The amount of money an individual anticipates earning over a specified future period, often based on current income and future prospects.

Expected Value

Probability-weighted average of the payoffs associated with all possible outcomes.

Expected Returns

The average return an investor anticipates receiving from an investment, taking into account the probability of different outcomes.