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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Block Scholes valuations
My BBP study text states that for American call options The Black Scholes fomula can be used as it is never optimal eto exercise early, but that for a put option it is not valid.
However I am working though the answer book and there are questions on real Options to deal which can be valued using black Scholes. However the model answer states that you can’t use Black Scholes if option can be exercised early?
Is this because in real life senarios there is an event that is being waited for and it is no longer worth delayING and it is therefore posibly in interest to move forward?
Q23 in practice and revision kit
Black Scholes only applies to European style options (for American style options there is an alternative formula which is not examinable).
In the exam, you ignore this problem and if you are asked to value options then you use the Black Scholes formula.