Pricing the Exotic: Path-Dependent American Options with Stochastic Barriers


  • Borradores de Economía


  • We develop a novel pricing strategy that approximates the value of an American option with exotic features through a portfolio of European options with different maturities. Among our findings, we show that: (i) our model is numerically robust in pricing plain vanilla American options; (ii) the model matches observed bids and premiums of multidimensional options that integrate Ratchet, Asian, and Barrier characteristics; and (iii) our closed-form approximation allows for an analytical solution of the option’s greeks, which characterize the sensitivity to various risk factors. Finally, we highlight that our estimation requires less than 1% of the computational time compared to other standard methods, such as Monte Carlo simulations.

fecha de publicación

  • 2021

Líneas de investigación

  • American Options
  • Asian Options
  • Barrier Options
  • Exotic Currency Options
  • Least Squares Monte Carlo
  • Option pricing
  • Ratchet Options
  • Weighted Time Value Methodology


  • 1156