American Option – What is an American Option?

What is an American Option?

Definition of American Option: It can be explained as a currency option which can be implemented by the holder any time prior to the expiry date. The currency options can be valued easily as their value falls at a specific point of time within the restraints of the famous Black-Scholes pricing form. However, the cost of an American option is complicated because of the exercise inconsistency. There is no specific agreement on the chosen model for determining valuations. Generally, the American Option has a high value because of the flexibility in selecting a previous date for exercising. The extra price for the retailer is compensated when a Forex consumes money and the rate of interest is much lower than the received currency. Exercising the American option previously is defensible since the time when the value of money is fewer compared to the expected depreciation value of other currencies.