Pricing American options in a jump diffusion model

Meihui Guo; Yu Chun Chang; Shih Feng Huang

doi:10.1109/CSE.2011.48

Pricing American options in a jump diffusion model

Meihui Guo, Yu Chun Chang, Shih Feng Huang

Graduate Institute of Statistics

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution › peer-review

Abstract

In this study, we use the McKean's integral equation to evaluate the American option price for the constant jump diffusion models. The early exercise boundary is approximated by a multipiece exponential function. Approximate closed-form solution of the no arbitrage American option prices are obtained . Simulation studies are performed to evaluate accuracy of the derived formula. The results show that the proposed method improves the pricing of American option for larger dividend rates.

Original language	English
Title of host publication	Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011
Pages	221-228
Number of pages	8
DOIs	https://doi.org/10.1109/CSE.2011.48
State	Published - 2011
Event	14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011, the 11th International Symposium on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011, and the 10th IEEE Int. Conf. on Ubiquitous Computing and Communications, IUCC 2011 - Dalian, Liaoning, China Duration: 24 Aug 2011 → 26 Aug 2011

Publication series

Name	Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011

Conference

Conference	14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011, the 11th International Symposium on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011, and the 10th IEEE Int. Conf. on Ubiquitous Computing and Communications, IUCC 2011
Country/Territory	China
City	Dalian, Liaoning
Period	24/08/11 → 26/08/11

Keywords

American options
early exercise boundary
early exercise premium
jump diffusion model
McKean's equation

Access to Document

10.1109/CSE.2011.48

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Guo, M., Chang, Y. C., & Huang, S. F. (2011). Pricing American options in a jump diffusion model. In Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011 (pp. 221-228). Article 6062877 (Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011). https://doi.org/10.1109/CSE.2011.48

Guo, Meihui ; Chang, Yu Chun ; Huang, Shih Feng. / Pricing American options in a jump diffusion model. Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011. 2011. pp. 221-228 (Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011).

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abstract = "In this study, we use the McKean's integral equation to evaluate the American option price for the constant jump diffusion models. The early exercise boundary is approximated by a multipiece exponential function. Approximate closed-form solution of the no arbitrage American option prices are obtained . Simulation studies are performed to evaluate accuracy of the derived formula. The results show that the proposed method improves the pricing of American option for larger dividend rates.",

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Guo, M, Chang, YC & Huang, SF 2011, Pricing American options in a jump diffusion model. in Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011., 6062877, Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011, pp. 221-228, 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011, the 11th International Symposium on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011, and the 10th IEEE Int. Conf. on Ubiquitous Computing and Communications, IUCC 2011, Dalian, Liaoning, China, 24/08/11. https://doi.org/10.1109/CSE.2011.48

Pricing American options in a jump diffusion model. / Guo, Meihui; Chang, Yu Chun; Huang, Shih Feng.
Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011. 2011. p. 221-228 6062877 (Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011).

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution › peer-review

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Guo M, Chang YC, Huang SF. Pricing American options in a jump diffusion model. In Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp.on Pervasive Systems, Algorithms, and Networks, I-SPAN 2011 and 10th IEEE Int. Conf. IUCC 2011. 2011. p. 221-228. 6062877. (Proc. - 14th IEEE Int. Conf. on Computational Science and Engineering, CSE 2011 and 11th Int. Symp. on Pervasive Systems, Algorithms, and Networks, I-SPA 2011 and 10th IEEE Int. Conf. on IUCC 2011). doi: 10.1109/CSE.2011.48

Pricing American options in a jump diffusion model

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