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http://dx.doi.org/10.7232/JKIIE.2012.38.4.244

An Iterative Method for American Put Option Pricing under a CEV Model  

Lee, Seungkyu (Department of Industrial and Management Engineering, Pohang University of Science and Technology)
Jang, Bong-Gyu (Department of Industrial and Management Engineering, Pohang University of Science and Technology)
Kim, In Joon (Yonsei School of Business)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.38, no.4, 2012 , pp. 244-248 More about this Journal
Abstract
We present a simple numerical method for pricing American put options under a constant elasticity of variance (CEV) model. Our analysis is done in a general framework where only the risk-neutral transition density of the underlying asset price is given. We obtain an integral equation of early exercise premium. By exploiting a modification of the integral equation, we propose a novel and simple numerical iterative valuation method for American put options.
Keywords
American Put Options; CEV Model; Numerical Algorithm; Iterative Method;
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