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http://dx.doi.org/10.7232/JKIIE.2012.38.4.249

Valuation of American Option Prices Under the Double Exponential Jump Diffusion Model with a Markov Chain Approximation  

Han, Gyu-Sik (Division of Business Administration, Chonbuk National University)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.38, no.4, 2012 , pp. 249-253 More about this Journal
Abstract
This paper suggests a numerical method for valuation of American options under the Kou model (double exponential jump diffusion model). The method is based on approximation of underlying asset price using a finite-state, time-homogeneous Markov chain. We examine the effectiveness of the proposed method with simulation results, which are compared with those from the conventional numerical method, the finite difference method for PIDE (partial integro-differential equation).
Keywords
Markov Chain; Double Exponential Jump Diffusion Model; American Option;
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