Analytical Valuation of American Options on Jump‐Diffusion Processes

Chandrasekhar Reddy Gukhal

Mathematical Finance, 2001, vol. 11, issue 1, 97-115

Abstract: We derive analytic formulas for the value of American options when the underlying asset follows a jump‐diffusion process and pays continuous dividends. They early exercise premium has a form very different form from that for diffusion processes, and this can be attributed to the discontinuous nature of the price paths. Analytical formulas are derived for several distributions of the jump amplitude.

Date: 2001
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