Analytical American Option Pricing: The Flat-barrier Lower Bound

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Abstract

In a Black and Scholes (1973) world, this paper studies the pricing performance of a closed-form lower bound to American option values based on an exercise strategy corresponding to a flat-exercise boundary. The lower bound has a simple two-step implementation akin to Barone-Adesi and Whaley (1987) formula and shows superior pricing performance in the out-of-the-money region and for long maturities.
Lingua originaleEnglish
pagine (da-a)399-413
Numero di pagine15
RivistaEconomic Notes
Volume33
DOI
Stato di pubblicazionePubblicato - 2004

Keywords

  • American option pricing

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