Closed form valuation of American options
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- Discussion papers (FOR) 
This paper presents a simple and intuitive approximation of the American call and put value. The approximation generalizes the Bjerksund-Stensland model by dividing time to maturity into two periods, each with a flat early exercise boundary. By imposing a feasible but non-optimal exercise strategy, a lower bound to the true option value is obtained. Numerical investigations indicate that the method represents an accurate and extremely computer efficient approximation to the American option value.
UtgiverNorwegian School of Economics and Business Administration. Department of Finance and Management Science