vertigo 发表于 2010-6-12 16:40 
what will it be if the equity pays a very hight dividend?
Gve a proof to support your point pls.
For equity paying dividends;
if you execute the American option just before the dividend paying time, you will get the dividend;
after than, you will gain the interests accumulated and the cherry picking right to choose a preferable execution time.
the final decision will be a trade off between the dividend gained and the interests plus cherry picking right.
it will be never optimal to execute before maturity if dividend is less than interests accumulated between dividend paying time and maturity, however, it is hard to say if dividend is high because the cherry picking right is difficult to measure, which depends on timing of execution and volatility of underlying.
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