Article1997

Numerical Analysis of American Option Pricing in a Jump-Diffusion Model

101 citations0/0 files storedMathematics of Operations Research

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Stochastic processes and financial applications Financial Markets and Investment Strategies Fuzzy Systems and Optimization

Abstract

We discuss pricing formulae for American options in Merton's jump-diffusion model. With the help of variational inequalities, we derive some regularity properties of price functions. Using the finite difference method, a discretization scheme is presented and a convergence theorem for the first order derivatives is proved. Numerical methods and results are also discussed.

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References

1973The Pricing of Options and Corporate Liabilities 2005Theory of rational option pricing 1976Option pricing when underlying stock returns are discontinuous 1987The Pricing of Options on Assets with Stochastic Volatilities 1990Hedging of contingent claims under incomplete information 1995Dynamic Programming and Pricing of Contingent Claims in an Incomplete Market 1996American Option Valuation: New Bounds, Approximations, and a Comparison of Existing Methods 1977THE VALUATION OF AMERICAN PUT OPTIONS

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