Pricing American options under the constant elasticity of variance model: An extension of the method by Barone-Adesi and Whaley

We consider the problem of pricing American options on an underlying described by the constant elasticity of variance (CEV) model. Such a problem does not have an exact closed-form solution, and therefore some kind of approximation is required. In this paper we extend the approach proposed by Barone-Adesi and Whaley (1997), which allows us to obtain a direct semi-analytical approximate solution. Numerical experiments are presented showing that the proposed method is satisfactorily accurate and computationally very fast.