One Subtraction Prices the Barrier Option Nobody Has a Formula For
An American call that only wakes up at 80 and dies for good at 125 has no closed form, and it cannot be simulated either, because a path runs forward while the exercise decision looks back. Every path that avoids the ceiling either visited the floor or never did, so the contract is one knock-out minus another and both come off a standard tree. The identity is exact to machine precision for European exercise at all seven grids tested, and for American exercise only in the continuous limit: the finite-tree residual falls from 0.532 percent at 45 steps to 0.043 percent at 3,394.