Options on stock indices and options on futures

This paper analyzes and compares the valuation of stock index options and stock index futures options. The early exercise privilege plays a central role in explaining the differences between the values of the two options. It is shown that the difference in value depends on the differences between the dividend yield and interest rates. Using numerical procedures, we compute the options values and find that the difference in values is larger for longer maturities and in-the-money options.