Valuation of American partial barrier options

Doobae Jun () and Hyejin Ku ()

Review of Derivatives Research, 2013, vol. 16, issue 2, 167-191

Abstract: This paper concerns barrier options of American type where the underlying asset price is monitored for barrier hits during a part of the option’s lifetime. Analytic valuation formulas of the American partial barrier options are provided as the finite sum of bivariate normal distribution functions. This approximation method is based on barrier options along with constant early exercise policies. In addition, numerical results are given to show the accuracy of the approximating price. Our explicit formulas provide a very tight lower bound for the option values, and moreover, this method is superior in speed and its simplicity. Copyright Springer Science+Business Media, LLC 2013

Keywords: Partial barrier option; American option; Hitting time; Barrier approximation; G13; C65 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:16:y:2013:i:2:p:167-191

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DOI: 10.1007/s11147-012-9081-1

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