American option

An option that may be exercised at any time up to and including the expiration date. Related: European option

American Option

An option contract that may be exercised at any time on or before the expiration date. For example, if one buys an American call giving him/her the right to buy shares in X expiring on the final Friday in March, the call may be exercised at any time on or before the final Friday in March. The differentiating feature of an American option is the fact that its value varies according to the value of the underlying asset over the life of the contract. This means that a holder may wait for an advantageous price and exercise the option. This contrasts with a European-style option, which may only be exercised on the expiration date.

American option

A put or call option that permits the owner to exercise the option at any time on or before the expiration date.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

This appendix derives the Radon-Nikodym derivative under the minimal martingale measure q and then consequently obtains (5) for American option pricing model.

Pricing of American put option under a jump diffusion process with stochastic volatility in an incomplete market

The American option value, P, in equation (3) can be estimated given any two observations of [P.sub.n].

An exponential extrapolation approach for the valuation and hedging of American options

In this paper, we have developed Laplace transform methods to solve the time-fractional American option pricing under regime switching models.

Laplace Transform Methods for a Free Boundary Problem of Time-Fractional Partial Differential Equation System

Subrahmanyam, 1997, "The Valuation of American Options with Stochastic Interest-Rates--A Generalization of the Geske-Johnson Technique", Journal of Finance, 52:827-840

11080000 Numerical methods, solution of PDE's

Stentoft, "Assessing the Least Squares Monte-Carlo approach to American option valuation," Review of Derivatives Research, vol.

Valuing convertible bonds based on LSRQM method

Due to this appealing feature, the entropy pricing method has been extended to price American options. Liu [4] proposed a so-called canonical least-squares Monte Carlo (CLM) method for pricing American options which uses Stutzer's framework to get the canonical distribution as pricing measure and determines the optimal exercise strategy via least-squares Monte Carlo algorithm (Longstaff and Schwartz [5]).

Pricing American options using a nonparametric entropy approach

However, because of the natural recombination, the trinomial Markov tree has its advantage, which can use the same backtracking method with the general trinomial tree, especially in American option.

Pricing options based on trinomial Markov tree