Hidden Optionalities in American Options
We develop a practical framework for identifying and quantifying the hidden layers of risks and optionality embedded in American options by introducing stochasticity into one or more of their underlying determinants. The heuristic approach remedies the problems of conventional pricing systems, which treat some key inputs deterministically, hence systematically underestimate the flexibility and convexity inherent in early-exercise features.
Authors
- Bacel Maddah (ORCID: https://orcid.org/0000-0001-7471-1655)
- Nassim Nicholas Taleb (ORCID: https://orcid.org/0000-0003-3821-3557)
- Noura El Hassan (ORCID: https://orcid.org/0009-0003-3213-8215)
Institutions
- Bay Institute (US)
- Mediterranean Institute of Management (CY)
- American University of Beirut (LB)
Publication Details
- Journal
- Risks
- Published
- 2026-04-14
- DOI
- https://doi.org/10.3390/risks14040089
- Primary Topic
- Stochastic processes and financial applications
- Type
- article
- Field-Weighted Citation Impact
- 0.00