Interview Question: Lower Bound for Calls

Sample Question #48 (finance – options)

What is the lower bound for the price of a European call option on a non-dividend-paying stock? Can you derive this lower bound in a formal fashion?

Now, what if the call option is American? What if the stock pays a dividend every quarter?

(Comment: another set of esoteric questions popular with quant interviewers. The topics are covered in Hull’s popular Options, Futures and Other Derivatives textbook)

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