Pricing the American options: A closed-form, simple formula

Moawia Alghalith

Physica A: Statistical Mechanics and its Applications, 2020, vol. 548, issue C

Abstract: We overcome a major obstacle in the literature. In doing, we introduce a simple, closed-form formula for pricing the American options. In particular, we significantly simplify Alghalith’s closed-form formula for pricing American options. In doing so, we introduce a formula that does not require the unknown expected consumption φ. This is a vast simplification, since the estimation of φ is challenging. That is, similar to a European option, we only need to know the interest rate and volatility. Furthermore, we derive an exact upper bound for the price.

Keywords: American option pricing; Upper bound; Closed-form formula; The generalized Black–Scholes PDE; Alghalith (2018) (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:548:y:2020:i:c:s037843711932151x

DOI: 10.1016/j.physa.2019.123873

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