Analytical American Option Pricing: The Flat-barrier Lower Bound

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.