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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.


Definitions:

Traveler's Check

A preprinted, fixed-amount check designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.

Instrument

A formal document, especially one that legally records a fact, act, or agreement.

Enforceable Contract

A legally binding agreement that can be upheld and compelled in a court of law.

Negotiability

The quality of a financial instrument that allows it to be transferred from one party to another with minimal legal restrictions.

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