Pricing American continuous-installment put option in a jump-diffusion model

Author

Deng Guohe

Author_Institution

Sch. of Math., Guangxi Normal Univ., Guilin, China

fYear

2013

fDate

26-28 July 2013

Firstpage

8289

Lastpage

8294

Abstract

This paper presents the integral equation for the price of an American continuous-installment put option in the case where the stock price follows a double exponential jump-diffusion model using the Fourier inversion transform approach. We use trapezoidal rule to discrete the integral term and extend the Newton-Raphson method to solve the non-linear equation system for the optimal stopping and exercise boundaries. Some numerical results are provided to analyze the option price and free boundaries changing with some different parameter values in this model.

Keywords

Fourier transforms; Newton-Raphson method; integral equations; nonlinear equations; pricing; American continuous-installment put option; Fourier inversion transform approach; Newton-Raphson method; double exponential jump-diffusion model; exercise boundaries; integral equation; jump-diffusion model; nonlinear equation system; optimal stopping; stock price; trapezoidal rule; Contracts; Educational institutions; Equations; Integral equations; Mathematical model; Numerical models; Pricing; American continuous-installment option; Fourier transform method; Jump-diffusion model;

fLanguage

English

Publisher

ieee

Conference_Titel

Control Conference (CCC), 2013 32nd Chinese

Conference_Location

Xi´an

Type

conf

Filename

6640904