Computing American option prices in the lognormal jump–diffusion framework with a Markov chain

Jean-Guy Simonato

Finance Research Letters, 2011, vol. 8, issue 4, 220-226

Abstract: This note examines a numerical approach for computing American option prices in the lognormal jump–diffusion context. The approach uses the known transition density of the process to build a discrete-time, homogenous Markov chain to approximate the target jump–diffusion process. Numerical results showing the performance of the proposed method are examined.

Keywords: American option; Jump–diffusion; Markov chain (search for similar items in EconPapers)
JEL-codes: C60 C61 C63 G13 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:8:y:2011:i:4:p:220-226

DOI: 10.1016/j.frl.2011.01.002

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