Submitted by Hairy-Thought6679 t3_116v8wy in wallstreetbets
haarp1 t1_ja77nad wrote
Reply to comment by Holy-Kimoly in Guys I want to read a book by Hairy-Thought6679
correct me if i'm wrong, but BS doesn't work that much for american options because of early assignment risk...
Holy-Kimoly t1_ja7pgt5 wrote
That is incorrect, although your point is fair. You do need to make some adjustments for dealing with American options. The theoretical framework around BS is for European options, and doesn't directly consider early assignment. The model is also built on a normal distribution curve, and the stocks don't behave as a normal distribution curve. It is a model, it certainly isn't "perfect", but it is a really good model that help to understand the mechanics behind option valuations.
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