Which of the following statements is correct about the early exercise of American options?
A. It is always optimal to exercise an American call option on a non-dividend-paying stock before the expiration date.
B. It can be optimal to exercise an American put option on a non-dividend-paying stock early.
C. It can be optimal to exercise an American call option on a non-dividend-paying stock early.
D. It is never optimal to exercise an American put option on a non-dividend-paying stock before the expiration date.
Answer:B
It is never optimal to exercise an American call option on a non-dividend- paying stock before the expiration date, but at any given time during its life, a put option should always be exercised early if it is sufficiently deep in the money. Thus, it can be optimal to exercise an American put option on a non-dividend-paying stock early.