An Approximate Formula for Pricing American Options

Nengjiu Ju, Rui Zhong
1999 Journal of Derivatives  
An approximate formula for pricing American options along the lines of MacMillan [1986] and Barone-Adesi and Whaley [1987] is presented. This analytical approximation is as efficient as the existing ones, but it is remarkably more accurate. In particular, it yields good results for long maturity options for which the existing analytical ones fare poorly. It is also demonstrated that this approximation is more accurate than the less efficient methods such as the four-point extrapolation schemes
more » ... f Geske and Johnson [1984] and Huang, Subrahmanyam and Yu [1996].
doi:10.3905/jod.1999.319140 fatcat:nsoqmgxdb5echf3djwbqnwjom4