TY  - JOUR
AB  - Purpose– The purpose of this paper is to study the importance of business time, and market opening/closing times and days, for American option pricing.Design/methodology/approach– A Bermudan pricing approach is employed whereby the option can be exercised only during the times and days the market is open. The authors apply the approach to the S&P 100 options market.Findings– It was found that the potential biases that can arise from ignoring the non‐continuous operation of the market are not negligible.Research limitations/implications– For expositional purposes, the authors assume that the price of the underlying follows a Geometric Brownian motion. This assumption could be relaxed by future research and more complex price dynamics models could be considered.Practical implications– The findings in this paper could be used in correcting observed option prices, prior to investigating the rationality of early exercise decisions, or in measuring the size of early exercise premia.Originality/value– This is the first study to examine the effects of business time, and market opening/closing times and days, to American option prices.
VL  - 37
IS  - 11
SN  - 0307-4358
DO  - 10.1108/03074351111167884
UR  - https://doi.org/10.1108/03074351111167884
AU  - Kourtis Apostolos
AU  - Markellos Raphael N.
ED  - Shuangzhe Liu
ED  - Milind Sathye
PY  - 2011
Y1  - 2011/01/01
TI  - Traded American options are Bermudan
T2  - Managerial Finance
PB  - Emerald Group Publishing Limited
SP  - 978
EP  - 984
Y2  - 2024/04/19
ER  -