The dournal of finance Pricing American Puts and Non Dividend paying Stock Table 2 shows the prices of American put options along with the value of the premature exercise privilege for the same parameters underlying Table 1, except that only a zero growth rate is assumed. Prices of American call options are not shown since, with no dividends, there will be no added value associated with the ability to exercise the call prior to maturity(see Merton [6]). Prices are shown for put options with exercise prices of 75, 100, and 125 under the assumption that the time differencing interval is 12, 52, 100, and 500 times per year. The differencing interval of 500 times is used as a proxy for the continuous case The prices in Table 2 suggest that the two- state model provides a accurate approximation to the value of the premature exercise privilege, eve r all practical purposes, 100 time periods appears to provide sufficient accuracy for determining actual American put prices using the two-state model For the options in Table 2 the prices obtained when T= 100 are within $.0l of the T= 500 prices American and European Puts and Calls on Dividend paying Stocks If a stock pays a dividend, it may sometimes pay to prematurely exercise a call option on the stock before the dividend is paid rather than hold the option when the stock is almost certain to decline in value. Thus, one would expect American call options on dividend paying stocks to be worth more than their European counterparts. On the other hand, if a stock is expected to pay a dividend, it is less ikely that an American put option will be exercised prematurely since the stock is likely to decrease in value when the dividend is paid due to the ex-dividend effect. The Black-Scholes model has been extended by Merton [6] to price American Put Prices Using the TSOPM Parameters Dollar Value American of premature 05 07 1066 10.75 2740 Dollar value of premature exercise is computed as: TSOPM TSOPM [American]-[European]. assuming a =. 0 in both cases. Put price Put price