A new approach to pricing American-style derivatives

This paper presents a new approach to pricing American-style derivatives. By approximating the value function with a piecewise linear interpolation function, the option holder's continuation value can be expressed as a summation of European call option values. Thus the pricing of an American option written on a single underlying asset can be converted to the pricing of a series of European call options. We provide two examples of American-style options where this approximation technique yields both upper and lower bounds on the true option price.