Pricing American Options in a Jump Diffusion Model

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.