Hi @ all in the Wilmott Forum,I was wondering whether anybody give me some hints on Index Option pricing, I know that I can use Merton (73) formula for european type options and in any case in can use binomial trees. Is there an analytical procedure for american index options. In an overview of Option Pricing formulas I saw a Brennan/Schwartz model for pricing index options, but I could find any further information anywhere. I would really appreciate it, if somebody could tell me where to find more information on that.Thanx!

Have you read Hull? Just use a quick Binomial tree model .........

Yupp, I've read Hull and I know that I can use binomial trees, but I'm looking for something else...

Trinomial trees? Implied trees? Smoke trees?

The third ones...

One should be able to use one of the American approximations such as Barone-Adesi Whaley or Bergsund-Stenslund (they have a new version out too). These formulas are in Haug's book. The new Berg-Sten formula will apparently be in the next edition of the book.Of course, these models assume a constant vol (no skew, etc). For this, one needs implied trees or other stoc vol models. They also use a dividend yield, but unlike the case of single equity options, where the dividend happens all at once, the approximation of the presumably reasonably spread out dividend dates of the various underlyings of the index, makes the mathematical approximation of a continuous dividend yield almost certainly not problematic.