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Analytical American Option Pricing: The Flat-barrier Lower Bound

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Author Info
Alessandro Sbuelz
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. Copyright Banca Monte dei Paschi di Siena SpA, 2004

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Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.

Volume (Year): 33 (2004)
Issue (Month): 3 (November)
Pages: 399-413
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Handle: RePEc:bla:ecnote:v:33:y:2004:i:3:p:399-413

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