A binomial model for pricing American-style average options with reset features

We propose a model for pricing American-style period-average reset options. Our approach relies on a binomial tree describing the underlying asset evolution on the reset period. At each node of the tree, we associate a set of representative averages chosen among all the effective averages realized at that node. At the terminal nodes, we associate an option value to each representative average by using the Barone-Adesi and Whaley analytic approximation since, at the end of the reset period, an American period-average reset option becomes a standard American option. Then, we use backward recursion and linear interpolation to compute the option prices.