Abstract
This paper is mainly about the research object of early exercise of American options by two-period binomial models. In this work, we use the two-period binomial model to analyze the price of American options and European options, decide whether to exercise early or not, and compare the differences between American options and European options. What is more, we use Python to help us with our calculations. Options are a kind of financial derivatives that help one to arbitrage, speculate, and hedge. To make more profits, people can use the binomial model to calculate the price of options. Through this analysis, we got to know each price of options in different situations, and we know that the price of American options is always equal to or larger than the price of European options. This work can help us to calculate the price of the option and decide if it is exercised early, and make sure to get more profits and apply it to daily life.
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