Early Exercise Boundaries for American-Style Knock-Out Options

This paper proposes a novel representation for the early exercise boundary of American-style double knock-out options in terms of the simpler optimal stopping boundary of a nested single barrier American-style contract.... [ view full abstract ]

This paper proposes a novel representation for the early exercise boundary of American-style double knock-out options in terms of the simpler optimal stopping boundary of a nested single barrier American-style contract. Additionally, and as a by-product of the novel representation obtained for the optimal stopping boundary, we are able to provide new put-call duality relations for American-style double knock-out options, under the whole class of exponential Lévy models. To illustrate the practical relevance of our novel results, we extend the static hedge portfolio approach as well as the COS approximation to the valuation of American-style double knock-out options.