The Valuation of American Barrier Options Using the Decomposition Technique
In this paper, we propose an alternative approach for pricing and hedging American barrier options. Specifically, we obtain an analytic representation for the value and hedge parameters of barrier options, using the decomposition technique of separating the European option value from the early exercise premium. This allows us to identify some new put-call "symmetry" relations and the homogeneity in price parameters of the optimal exercise boundary. These properties can be utilized to increase the computational efficiency of our method in pricing and hedging American options.
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