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.
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